The US tax system has undergone dramatic changes since Trump’s tax reforms took effect. Notable among these changes are the effects they will have on corporations, individuals, and US expatriates. The Tax Cuts and Jobs Act, otherwise known as TCJA made sweeping changes to US tax laws, and it's imperative that all of the amendments and additions are fully understood for compliance purposes. The TCJA is approaching its second year since inception, and it is the most significant modification of federal tax code in decades. Several important modifications were implemented through the new tax legislation, notably an increase in the standard deduction from $6000-$12,000 for individuals. For married couples, that figure increased to $24,000. For the 2018 tax year, 90% of filers took the standard deduction, reducing compliance costs to $5 billion annually. 

Naturally, there are many pros and cons of the modified tax code, such as the reduction of important deductions such as state and local taxes paid, and mortgage interest. Based on the updated tax reforms, an overwhelming number of US citizens and permanent residents will be subject to lower tax liability moving forward. Roughly 5% of taxpayers were required to pay more taxes in 2018 than they paid before TCJA was implemented. Notable among the changes was a sharp reduction in the corporate tax rate from 35% to 21%, with full deduction of capital investments through 2022. According to the Tax Foundation Taxes and Growth Model, the net impact of the new tax law will see the US GDP improve by an estimated 1.7% over a 10-year budget window, with reduced conventional federal revenues of $1.47 trillion, and a decrease of $48 billion on a dynamic basis.

Delinquency, Tax Filing, and Tax Fairness for Americans Abroad

The multi-faceted components of the Tax Cuts and Jobs Act requires laser focus when it comes to US expats. This is particularly true of filers who have neglected, forgotten, or simply avoided filing Form 8938 and FBAR (Foreign Bank Account Reporting) with the IRS and the Treasury Department respectively. Those who have failed to file their tax returns in previous years need to carefully assess the new tax law to ascertain whether they will be delinquent, compliant, or in violation of reporting requirements. As it stands, nearly 2 years after TCJA, any US permanent resident or citizen living abroad meeting the tax reporting requirements of the IRS will still be required to pay taxes, and file returns with the IRS. The new legislation certainly changes the field of operations for US taxation, but that only relates to US corporations. This means that the current tax legislation is somewhat territorially based, but it certainly doesn't affect the tax reporting obligations of US expats.

While then candidate Trump touted the adoption of a shift towards residence-based taxation, this has not occurred at an individual level and expats are required to report income derived abroad to the IRS. True to form, The Tax Fairness for Americans Abroad Act of 2018 made provisions for an end to citizenship-based taxation. However, George Holding’s bill was introduced just before the recess. The thrust of this bill was to exempt US expats from having to pay taxes on foreign income. 

The Importance of Understanding George Holding’s Tax Proposals

Unfortunately, for those hoping for greater traction with this bill, problems abound. It was introduced while Republicans held a majority in Congress. Now, it would have to be reintroduced by Democrats and signed as a bipartisan bill to be passed. In essence, this bill, if it ever passed (section 911 A) would add a provision stating that non-resident citizens can choose to be considered as qualified non-resident citizens, having only their US-based income taxed, and excluding all incomes derived from abroad. This would mean a tremendous difference in the overall tax burden paid to the IRS.

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