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Specialists in UK, US and Expatriate Tax.

How will Biden’s administration impact you? | US Citizen in UK

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US citizen in UK? What might a new US administration mean for you?

If 2020 hadn’t been challenging enough with the uncertainty surrounding the economy and the global pandemic there was a contested US election to top it off. With Trump’s law cases slowly being thrown out, it seems inevitable that come January 20th there will be a new president in the White House, and a new administration in office.

Although until the day the administration officially changes, and legislation is actually put in place we can only speculate on how this new administration will affect US expats living in the UK.

Possible tax changes on the horizon | US citizen in UK

However, as part of the Democrat election campaign some of their proposed tax reforms have been considered radical as they pretty much reverse changes made in 2017 by the Trump administration and will primarily affect high earners – at home and abroad.

The key proposed changes for Americans abroad include:

  • Income Tax increase – To increase the highest rate of tax from 37% to 39.6%. This would bring the top rate of income tax in line with Obama-era tax rates.
  • Capital Gains Tax changes – Long Term Capital Gains and Qualified Dividend tax rates to be scrapped for those with income over $1m. This would mean a change from the existing 20% rate to to bring it in line with ordinary income rates.
  • Estate and Gift Tax increase – To increase the top tax rate from 40% to 45%, and to decrease the tax exemption from $11.58m to $3.5m. There is also a proposal to repeal rules that provide for a step-up in basis for inherited assets, which could have a significant impact on taxpayers inheriting appreciated property.
  • Corporation Tax increase – The proposal would increase the Corporation Tax rate from 21% to 28%.
  • Global Intangible Low Tax Income (GILTI) changes – The legislation currently in place allows a 50% deduction for foreign registered companies that are subsidiaries of US corporations. The proposal is to repeal this allowance and therefore increase the GILTI tax rate from 10.5% to 21%. The deduction did not apply to individuals owning foreign companies, so would only affect those whose business interests are held by US corporations.
  • Child Tax Credit and Dependent Care Credit increases – These proposals would increase the Child Tax Credit from $2,000 to $3,000 ($3,600 for children under the age of 6), with the full amount eligible for a refund. In addition, the proposal for Dependent Care Credits would see the maximum claimable amount increased to $8,000 for one child or $16,000 for two or more children.

Such changes, if passed, could have a significant impact on the amount of tax you are due to pay to the US government.

How much difference can Biden actually make?

Ironically, winning the election was the easy part for Joe Biden, as once he takes his place at the White House the hard job of getting legislation through Congress will begin.

Depending on the outcome of the Georgia run-off elections, it is possible that while Democrats will have control of the House, they may still be the minority in the Senate. For any significant changes to be approved, the incoming President may need to secure an element of bipartisan support, so do not be surprised if some of his proposals fall by the wayside or get heavily watered-down.

What next?

With the situation being so uncertain you could be tempted to ‘wait and see’ but it is better to be prepared and start the conversations earlier rather than later. If you think some of these tax changes could affect you, or you would like clarification, give us a call today and we will offer advice on what the best plan of action could be for you at this time

What does a US Expat need to do at year end? Advice from international tax accountants

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We’ll share our professional recommendations with you now. Alternatively, you can download the PDF copy of this information, so that you can read in your own time.

If you are a US citizen you will be aware that as we are reaching the end of the financial year (December 31) it’s time to start thinking about your tax return for 2020, even if you live abroad.

Although it’s not normally due until April 15, or June 15 for those taxpayers living outside the US, last year’s filing deadline was extended to July 15 due to the pandemic. To date, no such extension has been announced for the 2020 Federal tax return season. State and local filing deadlines vary from State to State.

However, whether April or June, it’s never too soon to start preparing the information that you will require to ensure that the process runs smoothly. As usual, if you can’t meet the April or June deadlines, there is the option to file for an extension of time.

What do I need to do?

There are various pieces of information and documents that you will need to gather and prepare, if you are a US citizen residing abroad, as well as completing a tax return form. This information will include:

Travel

A schedule of the countries (including USA) you have visited with dates of arrival and departure

Wages, salaries and compensation

All official documentation (e.g. W-2, P60, P45, payslips, etc.) as well as any self-employed records of income and expenses.

Interest and dividend income

This is either from a foreign bank, domestic bank or other financial institution.

Any other income

This could include income from partnerships, trusts, or other business interests that you have.

Interest, taxes, and other deductible expenses paid

As a US citizen, mortgage interest, property taxes, and State income/sales taxes can count as a deductible expense. Other deductible expenses can include charitable contributions, alimony, and medical expenses.

Foreign housing expenses

You may be eligible to deduct the cost of your accommodation outside the US.

Dependents

You must provide information including, if available, Social Security Numbers (SSN) or Individual Tax Identification Numbers (ITIN) of your dependents.

Foreign financial accounts

You will need to provide information regarding your foreign bank and other financial accounts.

Foreign trusts, companies, and partnerships

If you have an interest in a foreign entity such as a trust, company, or partnership, you may need to provide detailed information about that entity.

The sooner you start to gather the correct information the better, and if you are unsure what applies to you or what can be counted as a deduction ,,contact your tax specialist who will be able to guide you.

Year-End Planning

In addition to preparing for next year’s tax filings, you might wish to consider a few simple year-end planning exercises to make your tax affairs run more smoothly:

  • Paying any foreign taxes due before the end of the year – the default US tax rules on claiming credits for foreign taxes paid are to consider taxes actually paid during the calendar year. So, paying before the end of the year will mean the the credit will be available on the current year’s tax return.
  • Realising capital losses – if you have realised capital gains for the year, you may also wish to consider realising any potential capital losses to minimise your tax exposure, as losses can be carried forward but not backwards. If this is something that you are keen to explore, you may wish to consult your financial adviser (if you have one) before taking any action.
  • Consider whether to make other deductible payments, such as charitable donations and State tax payments during the current year.
  • With a new Administration set to take over at The White House in January, there is abundant speculation around tax law changes that might be implemented, including reductions in gift and estate tax exemptions, and increases in income tax and long term capital gains tax rates. Whilst none of this can be predicted with any degree of certainty, you may wish to address how any changes might impact you.

Do the new laws affect you?

New US tax laws were passed in December 2019 extending a number of expiring provisions. Additionally, some new tax changes take effect from 2020 including:

  • Changing the age for required minimum distributions from retirement plans from 70.5 years to 72 years.
  • Repeal of the maximum age for traditional IRA contributions.
  • More generous provisions for deducting charitable donations, including a repeal of the AGI limitation and an ‘above the line’ deduction of up to $300.

If you are uncertain which of these breaks could benefit you or your family when you file your US tax return, here at Everfair we are always available to advise you based on your personal circumstances.

Do I need a tax specialist?

Although as a US citizen living abroad it is not necessary to engage a US tax specialist to help file US tax returns, it will definitely save you time and give you peace of mind, and it could minimise the amount of tax you could ultimately pay by ensuring all the tax breaks, exemptions and deductible expenses are taken into account, as well as reducing your risk of double taxation.

Obviously the more time, stress and tax saved will vary on your personal circumstances and how complex your financial situation is.

For peace of mind, and a stress-free US tax return, why not ,,contact us today and ensure your tax return is as accurate and as beneficial for you as possible.