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Highlights Of The Latest Republican Tax Reform Plan

President Trump unveiled his latest framework for tax reform, which stems from a collaborative effort by the so-called “Big Six,” which includes members of the Trump administration and Senate and House leaders.

The following is a quick summary of some of the main provisions of the plan, which have potential consequences for U.S. expat individuals:

  • Reducing the 7 tax brackets to 3 brackets of 10%, 25%, and 35%
  • Raising the standard deduction to $24,000 for couples and $12,000 for individuals
  • Increasing the child tax credit amount and raising phase-out income levels
  • Eliminating the personal exemption and replacing it with the higher child credit and standard deduction
  • Abandoning Ivanka Trump’s plan to add a tax deduction for child care in favor of an increased child tax credit
  • Retaining the mortgage interest and charitable deductions, but eliminating many other itemized deductions including the deduction for state and local taxes
  • Repealing the alternative minimum tax
  • Repealing the death tax and the generation-skipping transfer tax

The general approach of these reforms looks quite similar to Trump’s previously-announced tax reform plans. For an in-depth look at how these provisions may specifically affect expat taxpayers, please read our previous blog that provides a detailed analysis on a reform-by-reform basis.

It’s important to also note that the plan contains a number of corporate tax and corporate international tax reform proposals that would significantly affect U.S. businesses. These include a reduction of the corporate income tax rate from 35 percent to 20 percent. The new corporate tax would be “territorial,” i.e., foreign income earned by U.S. companies would be tax-free, and all untaxed income currently held overseas would be immediately taxed at a fixed rate.

At the international level, the plan would provide for a 100% exemption for dividends paid to U.S. companies by their foreign subsidiaries. The plan would treat accumulated offshore profits as repatriated, giving rise to a one-time repatriation tax (at a “low” rate that was not specified) that is payable over five years.

As a general matter, it’s important to note that this latest plan requires the approval of the U.S. Congress, a process that is highly politically charged and will take some time. There is also no guarantee as to which of the changes will ever come to legislative fruition.

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Mr. Moss is a Tax partner in a boutique U.S. tax firm specializing in the areas of international taxation and expatriate taxation. The practice focuses on servicing U.S. individuals and small business located outside the U.S. with their U.S. and international tax matters and includes both tax planning as well as annual tax compliance (tax return preparation). He has extensive experience with filing delinquent returns under the IRS Streamlined procedure, FBARs, FATCA reporting (Form 8938), reporting interests in foreign corporations (Form 5471) and partnerships (Form 8865) as well as foreign trust reporting (Form 3520 and Form 3520/A). He works very closely with clients utilizing the various international tax treaties in order to maximize benefits through smart tax planning. Previously he held a senior position in the international tax practice of Ernst & Young. He is an attorney licensed in the State of New York.