Watch the third episode in this exclusive series featuring Edward Ajodah, CPA, J.D., Principal for ways to help you identify and plan for opportunities triggered by the transition tax.
Read the Transcript
The transition tax is essentially government’s imposition of a one-time charge for a conversion of the U.S. tax system from a worldwide taxation system to a territorial tax system.
The transition tax affects U.S. taxpayers that own 10% or more of foreign corporations and where those foreign corporations have undistributed earnings. Those earnings are going to be suffering a one-time charge. Computing that amount of tax though involves some very detailed and complex calculations.
In addition to the previously taxed income, corporations can now benefit from restructuring their foreign operations to leverage these new rules that will provide better benefits down the road. Because of the new participation exemption system, they will no longer be taxed in the U.S.— so restructuring, reorganization of operations will be very, very critical on a go forward basis to ensure that taxpayers can then benefit the most from the tax exempt income.
The IRS guidance that’s still to be released will assist taxpayers in understanding the consequences of the payment of the transition tax. I would recommend that any taxpayer that’s affected by the transition tax reach out to a tax professional at Friedman to deal with the complexities of the new rules — and at the same time, understand how the results of the transition tax would provide planning opportunities for you to be able to realize the benefits of the participation exemption system and understand, in detail, the consequences of the transition tax.
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- New Partnership Audit Rules with Michael Greenwald, MPPM, CPA, Partner
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- Global Intangible Low Tax Income (GILTI) with Ryan Dudley, CPA, CA, CTA, MIT, Partner
- Foreign Derived Intangible Incomes (FDII) with Erasmo Bruno, LL.M., JD, CPA, Partner
- Using 529 Plans to Pay for Education Costs with Jonathan Curry-Edwards, CPA, Principal