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New IRS Tax Return
Bright!Tax look at the Tax Reform Changes that expats will see when they file their 2018 US Tax Return
Published on January 7, 2019
Article by Bright!Tax

All Americans are required to file US taxes, reporting their worldwide income, wherever in the world they live. To avoid double taxation, expats can claim one or more IRS exemptions when they file. Many expats also have to report their foreign bank accounts and investments by filing a Foreign Bank Account Report (FBAR).But what changes will US expats in particular notice when they file their 2018 tax return?

New Form 1040

While not part of the Tax Reform, the President’s campaign promise to simplify form 1040 will materialize in January. The new, smaller form 1040 was announced by the IRS earlier this year, and it will replace all previous versions of the form (e.g. 1040EZ). Whether it will make filing easier isn’t clear though, as to make the form smaller many fields have simply been moved onto new schedules. So while expats with the simplest circumstances might find the fields they need more easily, many will have to familiarize with the new schedules to find the fields they need.

Tax Rates, Brackets, and Exclusions

The Tax Reform reduced both corporate and personal tax rates. While most expats claim one or more or the available IRS exemptions when they file and so end up paying little or no US income tax, expats who pay UK income tax at a higher rate than the US rate they would owe and who claim the Foreign Tax Credit will find themselves with more excess US tax credits for 2018 than previously, which they can put aside for future use.

The Tax Reform retained the Foreign Earned Income Exclusion, so expats who claim it can continue to do so, with the threshold rising to $103,900 for 2018.

Expats with a Foreign Businesses

Expats with a foreign registered business were among the most affected by the Tax Reform, as many found themselves caught in the same net as Tech giants Apple and Microsoft and so facing new taxes on both past and future foreign earnings.

During 2018, most of these expats scrabbled to restructure and minimize their tax liability going forward, however any expats with any significant ownership interest in a foreign registered corporation who haven’t yet consulted with an expat tax specialist should do so at the earliest opportunity.

Expat Parents: The New Child Tax Credit

Many expat parents stand to benefit from the new Child Tax Credit, which is an amalgamation of the old Child Tax Credit and Additional Child Tax Credit.

In particular, expats who claim the Foreign Tax Credit and who have child dependents can now claim a refundable $1,400 tax credit per child, even if they owe no US taxes, meaning cash in the bank.

Voluntary Disclosure Programs

The IRS ended the Offshore Voluntary Disclosure Program (OVDP), an amnesty program for expats who had willfully concealed foreign income or assets from the IRS, in 2018. Most expats who aren’t filing a federal tax return however are doing so due to ignorance rather than intent, and the amnesty program allowing non-willful expats to catch up without facing penalties, known as the Streamlined Procedure, is still open. We recommend expats who are behind with their US tax filing take steps to become compliant as soon as possible though, as the closing of the OVDP has set a precedent and the Streamlined Procedure may also close at fairly short notice sat some point soon.

Bright!Tax (brighttax.com) is an award-winning, leading, specialist provider of expat tax services for Americans living abroad. If you require any assistance filing your US taxes, get in touch at inquiries@brighttax.com

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