Manage your US taxation in a period of uncertainty
With tighter regulations and increasing accountability being introduced to limit unscrupulous tax avoidance ploys, the taxation process for a US national living abroad is becoming increasingly challenging.
For those who may have inadvertently omitted to file Federal tax returns, the Streamlined Foreign
Offshore Procedures is still in place in 2019 but, although no end date has as yet been given, it is safe to
assume that it will cease at some point.
To get back into the US system and to qualify for filing under the Streamlined Foreign Offshore Procedures,
you need to be able to demonstrate that amongst other requirements, you do not reside in the US and
that you have failed to report your income and pay tax on a foreign financial assets due to non-willful
negligence, by a misunderstanding of the obligations required, or as a mistake or an inadvertent error.
If you are able to satisfy this (and in particular not have spent more than 35 days in any year covered by
the provisions in the United States), you are required to file the three most recent delinquent tax returns
as well as the most current Return.
Elsewhere, with the new tax reform legislation brought in late 2017, global intangible low-taxed income
(GILTI) has been introduced into the international tax arena. This provision has been set in place to
discourage US taxpayers from shifting profits abroad, or leaving income within foreign companies rather
than recognizing it as earned income in the year. Now, under the GILTI regulations, all US owners of
foreign companies must recognize unrealized profits within those companies as part of calculating their
US tax obligations. Individuals who qualify as being potentially liable to GILTI need to consider whether
they pay the tax, or recognize the income as earnings and potentially pay a lower tax. Alternatively, many
advisors are suggesting any unrecognized income be placed into pension vehicles as far as possible, to
shield from potential US taxation and anyone finding themselves in this position should take professional
To complicate matters further, the unsettled economic conditions are impacting adversely on exchange
rates. US citizens are required to file their annual Tax Return in US dollars and as such, US citizens living
abroad are exposed to exchange rate fluctuations that may create US taxation on income that has not
occurred in the host country currency. This is particularly prevalent and unfavorably affects foreign
investments traded in non-US dollar currencies.
It is also important to remember that the personal exemptions, where a taxpayer was entitled to an
exemption for themselves (unless they were claimed as a dependent by another taxpayer), an exemption
for their spouse if they filed a joint return, and one personal exemption for each of their dependents has
disappeared for 2018. The standard deduction has been recalculated and although the standard
deduction thresholds have increased, many larger families will now see a reduction in their tax-free
allowance and therefore an increase in their tax bills.
Finally, the “Kiddie tax” rules changed in respect of 2018 and you will need to check how your children’s
investments are being taxed for 2018 and going forward. Prior to the tax reform, any child’s unearned
income in the form of dividends, interest and capital gains tax over the $2,100 threshold, was taxed at the
parent’s tax, rate rather than the lower children’s rate. Introduced to prevent parents avoiding tax by
transferring large amounts of unearned income into their children’s accounts, this rate has been revised
and is now based on the heavier tax rates for trusts. Therefore, a review of current holdings and income
is advised to ensure that there are no latent liabilities accruing.