With less than three weeks to go until the 2020 election, it’s time to take stock and have a look at the implications of the two outcomes for expats.
It’s the strangest election year in living memory and perhaps ever, with the economy rocked by a global pandemic, social unrest across the country, and the president catching COVID a few weeks before the vote.
In this article we’ll look at the tax plans the two parties have announced so far that will impact expats, as well as a recap on voting from abroad.
Democrat and Republican tax plans
The Democrats plan to increase income taxes solely for higher earners, however very few expats would notice this, as most can claim either the Foreign Earned Income Exclusion or the Foreign Tax Credit when they file, which often eliminates their US tax bill completely.
One tax raise planned by the Democrats that will impact expats with a foreign registered business is the plan to double the effective GILTI tax rate from 10.5% to 21% for expats with a foreign business that has a US parent company. Tens of thousands of expats created a US parent company for their foreign registered business in 2018 following the introduction of GILTI to take advantage of the 10.5% rate.
There is another source of hope for expats paying GILTI though, in the form of Monte Silver’s law suit against the IRS, which may result in a GILTI exemption for American owners of a foreign businesses with revenue of less than $25m a year.
The Democrats also plan to increase overall US corporate tax from 21% to 28%.
“U.S. citizens can receive an absentee ballot by email, fax, or internet download, depending on the state they are eligible to vote in.” – the State Department
The Democrats have no plans to repeal FATCA or citizenship based taxation, although Joe Biden did recently post a letter to Americans living abroad on the Democrats Abroad website saying he would work with expats to address issues impacting their lives, including accessing banking and financial services.
The Republicans meanwhile have pledged not to increase any taxes, and also to repeal FATCA and citizenship based taxation. If implemented, these measures would provide relief for Americans living abroad from reporting foreign income, and also on accessing financial services. However, both of these measures were also included in the 2016 Republican platform, but weren’t subsequently enacted, so there’s no guarantee that they would be this time, either.
Last month, Republicans Overseas delivered a letter to White House Chief of Staff Mark Meadows asking that the president issue an executive order to alleviate US taxation of expats. Meadows let it be known that he was more interested in a legislative solution after the election.
In summary, whichever party wins, the most probable scenario is that the majority of expats won’t notice any difference with regards to US taxes, the exception being expats with foreign registered businesses, should the Democrats win.
Is it too late for expats to vote?
For those expats who have already registered, it’s important that they now return their ballots as soon as possible to ensure that their vote is received and counted.
Does voting mean the IRS will investigate me?
The IRS has no access to state voting registers, so voting in federal elections can’t in any way trigger an IRS audit or any other unwarranted attention.
Expats who have any questions about filing US taxes from abroad (as all Americans are required to, reporting their worldwide income) should seek advice from a US expat tax specialist as soon as possible to ensure that they avoid any future penalties.
Expats who are behind with their US tax filing can often catch up without facing penalties under an IRS amnesty program called the Streamlined Procedure.