Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
On November 15, 2018 the IRS issued Revenue Procedure 2018-57. This Rev. Proc. outlines the indexed amounts and thresholds for the 2019 tax year. This includes the four tax tables: Table 1, IRC §1(j)(2)(A) – Married Individuals Filing Joint Returns and Surviving Spouses; Table 2, IRC §1(j)(2)(B) – Head of Households; Table 3, IRC §1(j)(2)(C) – Unmarried Individuals (Other than Surviving Spouses and Head of Households; and Table 4, IRC §1(j)(2)(D) – Married Individuals Filing Separate Returns. Cadesky U.S. Tax has put together a summary of those provisions that we feel are relevant for U.S. persons resident in Canada. Please check out our website at http://cadesky.tax/wp-content/uploads/2019/01/U.S.Personal.Income.Tax_.Rates-2019.pdf.
It should be noted that under the 2017 Tax Cuts and Jobs Act (TJCA) there is no deduction for a personal exemption amount for tax year 2019. In addition, there was a significant increase in the amount of the standard deduction, which was almost doubled. Many taxpayers who would have claimed itemized deductions in the past may now be better off claiming the standard deduction. While the 2017 TCJA significantly reduced U.S. corporate tax rates it only slightly reduced personal tax rates with the top marginal rate reduced to 37% from 39.6%.
Many of these changes will expire on December 31, 2025 as these provisions are subject to a sunset provision under the “Byrd Rule”.
Under the Byrd rule, the Senate is prohibited from considering an extraneous matter as part of a reconciliation bill or resolution or conference report thereon. Technically the 2017 Tax Cuts and Jobs Act was a reconciliation bill and hence is subject to the Byrd Rule. The Byrd rule is enforced when a Senator raises a point of order during consideration of a reconciliation bill or conference report. If the point of order is sustained, the offending title, provision or amendment is deemed stricken unless its proponent can muster a 3/5 (60) Senate majority vote to waive the rule. The Senate passed the 2017 TCJA by 51-48 so the 60 vote threshold was not met meaning that the Byrd rule was not waived.
At this point in time, it is unclear what the intent of Congress is with respect to making permanent many of these changes. Only time will tell.
The Canadian tax rates still remain substantially higher than the corresponding U.S. tax rates and brackets. As such for U.S. persons resident in Canada the change in the U.S. personal tax rates and the doubling of the standard deduction is a moot point. Canada dictates what their global tax would be. Lowering the effective overall U.S. tax rate will result, in most cases, in the creation of more excess foreign tax credits (which will probably expire unused). As such, such taxpayers may wish to forego claiming itemized deductions altogether to simplify their U.S. filings.
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The material provided in this U.S. Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither Cadesky Tax nor Cadesky U.S. Tax can accept any liability for the tax consequences that may result from acting based on the contents hereof.