The string of bills that comprise Tax Reform 2.0 is now available to the public! The stated objectives of this reform are to: “lock in the individual and small business tax cuts made law in the Tax Cuts and Jobs Act, make it easier for families and businesses to save for retirement, and boost American innovation by growing startup businesses.” The three bills that make up the reform have a lot of changes in store for American taxpayers. So, what can expats expect?
The Three Bills
Entitled the Protecting Family and Small Business Tax Cuts Act of 2018, the Family Savings Act of 2018, and the American Innovation Act of 2018, these three bills contain the permanence that the original tax reform did not. To answer the foremost question on many expats minds: expats were not mentioned in any of the bills, unfortunately, and cannot expect a simplification of their tax reporting requirements at this time. But what do the bills say?
The Protecting Family and Small Business Tax Cuts Act of 2018
This bill, also known as H.R. 6760, would make permanent the deduction for qualified business income of pass-through businesses, which Section 199A of the Tax Cuts and Jobs Act had set to expire after 2025. Pass-through businesses are companies such as partnerships, S corporations, and sole proprietorships, and they are not subject to corporate income tax. This provision lets businesses deduct 20% of pass-through income from federal taxation. H.R. 6760 would also make the SALT cap permanent, as well as the increased standard deduction and child tax credit. The personal exemption elimination would no longer expire, either. The medical expense deduction, which allows taxpayers to deduct qualified medical expenses in excess of ten percent adjusted gross income (AGI), has been expanded to include anything over 7.5 percent of AGI; that portion of the bill would be valid through 2020.
The Family Savings Act of 2018
This bill, also known as H.R. 6757, contains proposed changes to retirement accounts. For instance, the age limit for contributions made to traditional IRAs, SEPs, and SIMPLE IRAs has been altered in some cases. It would also create small universal savings accounts (USA) that function similar to ROTHs, but distributions could be made at any time and would be available beyond retirement.
The American Innovation Act of 2018
H.R. 6756 aims to create more entrepreneurship by allowing startups to deduct startup costs. Expenses that could not be deducted immediately (because they exceed $20,000) can be amortized over 180 months.
As more information comes down the pike about the tax reform and its implications for expats, we’ll keep you posted. In the meantime, if you have any questions, our accountants are equipped to help answer them. Don’t hesitate to contact us!