Americans with a small business overseas are going to be hit with a transition tax, essentially a 15.5% on earnings held in cash (and equivalents), and 8% on other earnings.
The transition tax took effect at the end of 2017, and the tax repatriates money that businesses hold abroad — and it applies to earnings and profits that date back to 1986.
Larger corporations are also going to feel the effects too, but unlike smaller businesses, they will not be hit as hard. The reason for this is that they likely be able to use a 100% dividends received deduction, basically what this means is that they can repatriate their dividends without paying any taxes. We’ll have to see what happens on this front though.
According to Tannenbaum, a tax expert:
“Getting clients to understand the law is the first battle, getting them to believe you is the second battle.”
Many European countries have high tax rates, and their idea is that they’ve been paying 35 percent taxes all along, why pay another U.S. tax on top of that?
Whereas FBAR can apply to any individual who owns a foreign account, the transition tax is for controlled foreign corporations.”
“For smaller companies, especially companies set up by expatriates, this could put people out of business and be a negative life-changing event,” said David McKeegan, co-founder of Greenback Expat Tax Services.
Whether you owe money to the IRS or you have a State tax debt, our staff of Enrolled Agents and Tax Attorneys can help. We have experience negotiating with the IRS in all 50 States.