Transition Tax Stumps Accidental Americans And Expats


Tax is getting a little complicated for expat American business owners.

An unintended result of President Donald Trump’s Tax Cuts and Jobs Act is a transition tax aimed at the profits of multinational companies.

This transition tax demands expats running small businesses abroad should pay a 15.5% tax on foreign earnings held in cash and cash equivalents and 8% on other earnings.

The idea is to ‘repatriate’ profits massive companies like Apple, Google and Amazon are holding offshore, but lawmakers forgot to include a clause excluding small businesses.

The transition tax is applied to all earnings and profits between 1986 and 2017.

Respite for small businesses

The US Internal Revenue Service is offering some respite to small business owners by allowing them to pay the tax in several instalments – if they register and pay the first slice by September.

But business accountants say this is almost impossible as they will not know how much tax they owe because they will not have worked out repatriated dividends, which are exempt from the tax.

For small businesses, the transition tax is expected to lead to cash flow problems.

If a business has set aside cash in the bank to pay suppliers and next year’s tax, they are going to find themselves short because the transition tax will already have grabbed a slice of the money.

“If you knew you needed to keep $100,000 on hand for working capital, it wasn’t taxed by the US before, but now the US government is taxing that $100,000 at 15.5%, so you either fall short or need to set aside more cash and pay the tax on that as well,” said accountant Richard Tannenbaum.

Taxing time

“It’s going to be a push in September to understand this and get the calculations in place.

“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 US tax on top of that?”

Then there’s the problem of Accidental Americans who are US taxpayers because of a distant family link who do not believe the IRS has any jurisdiction over them because they have never set foot in the States.


  1. How Americans put up with the tyranny of their tax system is beyond me. I’ve never seen a single protest about taxes at the US consulate down the street from me. They are all terrified of the US government even though we are in Europe. I am just so thankful not to be an American.

  2. U.S. tax and compliance laws apply Kafkaesque double taxation on U.S. persons tax resident overseas.

    There are extra U.S. penalties, tax, and disincentives for money, accounts, pensions, and investments in countries other than the US; even if you live permanently overseas, your accounts are local to you, and you already pay a fair share of tax to the country you live in, often at higher rates than U.S. taxes.

    In an increasingly global and mobile world the US should not punish The 9 million US persons living, working overseas, and expanding US influence and trade overseas.

    Once resident overseas the U.S. provides ZERO resident services or local protection of property in exchange for the double taxation + extra reporting + extra penalties.. Thus the one-way double tax claim is unjust, is un-American, and has been called Tributary Slavery.

    As a group “Accidentals” no better highlight the injustices and hypocrisy of the American laws in view of American founding principles.

    “Territorial taxation” for INDIVIDUALS with a bill in Congress by the end of the year will help remedy the injustices involved. Calibrated for Congressional support It will be an important first step.

    Any U.S. persons overseas must visit purpleexpatorg, The Isaac Brock Society, citizenshiptaxation dot ca Facebook Citizenship Based Taxation and American Expatriates Groups, and FixTheTaxTreaty dot org

Leave a Reply