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Offshore income and the new tax act

The Tax Cuts and Jobs Act will impact all taxpayers including those residing offshore. The act’s provisions include adjustments to corporate rates and exclusion rates.

With changes to the tax code, authorities promise simplification. But that does not mean offshore residents will see tax relief.

Exclusion rate calculations

The Foreign Income Exclusion (FEIE) and Foreign Tax Credit included in the tax reform protect those living offshore from double taxation. The amount concerning the FEIE is indexed for inflation, but it is important to note changes made regarding inflation calculations. Since federal authorities will require the use of a lower rate of inflation in the calculations, offshore residents can expect to see an increase in taxes over time.

The impact on corporate rates

Unfortunately, those owning businesses in other countries will likely see their tax rates raise as well. Previously, corporations paid taxes on income earned elsewhere. Now these individuals may face a one-time repatriation tax of 15.5 percent concerning overseas profits not previously taxed.

Reporting of tax information

One thing not changed by the new act (and what Michigan residents hoped for most), was a simplification of reporting requirements concerning offshore income. Promises for simplification are usually exaggerations.

Taxpayers with offshore interests and income will still need to fill out the Foreign Bank Account Report (FinCEN 114), forms associated with the Foreign Account Tax Compliance Act (FATCA), the Statement of Foreign Financial Assets, Report of Certain Foreign Corporations, and the Report of Foreign Trusts.

There is too much at stake to make mistakes in complying with tax regulations. Mistakes mean seizure of money within offshore accounts and other assets, fines, penalties and possible criminal indictment. And without fully understanding all of the requirements, mistakes are more likely to occur. Experienced tax attorneys can help prevent reporting errors from occurring.

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