The 2019 tax season is shaping up to be one of the more unique seasons in recent memory. For U.S. expatriates, filing your taxes in 2019 presents unprecedented challenges and opportunities. To get started in the right direction, here are five tips for filing this year.
1. Familiarize Yourself with the Trump Tax Reform.
As you may have seen this past year, President Trump enacted tax legislation (the Tax Cuts and Jobs Act or TCJA) that shook up the U.S. tax system. The legislative changes to the U.S. Tax Code were the most drastic in decades. Almost all of the changes come into effect this tax season—so it’s important that you familiarize yourself with them.
On the individual side, U.S. expats will note the following main changes:
- The lowering of the ordinary income tax rates
- An increase in the standard deduction
- The elimination of many itemized deductions
- An increase in the child tax credit
- An increase to the estate and gift tax exemption
On the business and international sides, even more fundamental changes now apply. The most notable of these is a drastic reduction in the corporate tax rate (lowered to a flat rate of 21%). Other changes include the elimination of the alternative minimum tax for corporations, a modified limitation on interest deductions, and the introduction of a one-time tax on deferred foreign business income. Plus, there's a new system of current-year inclusion of so-called global intangible low-taxed income.
While the Trump administration touted the reform as simplifying the average American’s tax return, U.S. expats with businesses abroad will most likely find that the tax reform has done just the opposite—bringing additional complexity and more nuanced international forms to file and prepare.
To familiarize yourself with the reform, you may want to start by looking at the IRS website, which now dedicates a number of pages and publications to explaining the tax reform provisions.
2. Expect IRS Delays.
The recent IRS shutdown and looming potential for more government gridlock mean that the IRS is, in many ways, uniquely unprepared for this season, especially considering all the changes to the Tax Code that it must administer this year.
While the IRS is making a valiant effort to stay on schedule, don’t be surprised to see delays in tax return and refund processing this year.
3. Be Aware of Unique Filing Deadlines.
While you may be familiar with the basic filing deadline of June 15 for U.S. citizens living abroad (which can be extended), you may be unaware of certain unique deadlines that apply to your activities abroad.
One important example is the foreign bank account reporting form (FBAR) which has an initial deadline of April 15 but is automatically extended for 6 months to October 15.
Another important example involves foreign trust reporting. Reporting your ownership in a foreign trust (or pension treated as a trust for tax purposes) has a unique deadline of March 15. This deadline can be extended, but only if you file your extension request with the IRS by the initial deadline.
In line with the many changes brought about by the Trump tax reform, for the first time this year, the IRS has announced that it will be focusing its examination efforts heavily on trust reporting. Penalties for late filers can amount to $10,000 per trust or 5% of trust assets, whichever is greater.
4. Gather and Organize Your Information.
Whether you’re tackling this year’s taxes on your own or you’re getting help from a professional tax preparer, gathering and organizing your information are crucial steps for making sure you end up filing your taxes on time.
For expats with investments abroad or businesses overseas, especially those operating with non-calendar year schedules, keeping on top of your information can be especially important.
Be careful not to throw away any important tax-related documentation, and make sure you review information that is available online.
5. Don’t Hide Your Head in the Sand.
For our last tip, we end with a word of caution for those expats who haven’t been filing while living abroad—it’s becoming increasingly hard to hide your head in the sand. The advancement of FATCA and other international tax agreements means that the IRS may end up with information about you sooner than you think.
An IRS tax amnesty program is a great way to get caught up with the IRS with minimal or even no penalties. It should be noted that the IRS recently ended one of its tax amnesty programs (the “Offshore Voluntary Disclosure Program”), and there is no telling how much longer its other programs will stick around. So if you’re a late filer, we strongly recommend that you consider a tax amnesty program to bring you back into compliance with the IRS.
After spending the majority of his career at one of the largest accounting firms (PwC), Joshua Ashman now heads Expat Tax Professionals, a firm specializing in the needs of U.S. citizens living abroad.