Understanding the Tax Cuts and Jobs Act: What It Means for You

When the Tax Cuts and Jobs Act (TCJA) passed in December 2017, it marked the biggest overhaul of the U.S. tax system in more than 30 years. The changes affect nearly everyone, whether you are an individual taxpayer in the U.S., an American expatriate living in Canada, or a small business owner. While the law introduced new opportunities, it also created complexities that make planning and compliance more important than ever.

What Changed for Individuals

One of the most noticeable shifts came in personal tax rates. Most income brackets saw reductions, with the top marginal rate falling from 39.6% to 37%. At the same time, the standard deduction nearly doubled, rising to $12,000 for single filers and $24,000 for married couples filing jointly.

But not all changes meant savings. The personal exemption, which once reduced taxable income for each taxpayer and dependent, was eliminated. On the other hand, families benefited from an expanded Child Tax Credit, which doubled to $2,000 per child and became available to more households thanks to higher income thresholds.

Itemized deductions also shifted. The once-unlimited state and local tax deduction (SALT) was capped at $10,000, and several other deductions were reduced or eliminated altogether. These changes hit taxpayers in high-tax states particularly hard.

For U.S. Citizens Living Abroad

If you are an American living in Canada, many provisions of the TCJA still apply to you. The good news is that the Foreign Earned Income Exclusion (FEIE) survived, allowing qualified taxpayers to exclude over $120,000 of foreign income from U.S. taxation each year.

However, new rules introduced under GILTI (Global Intangible Low-Taxed Income) and the transition tax brought challenges for Americans who own shares in foreign corporations, including Canadian companies. These provisions can create unexpected tax obligations, even if profits are not distributed.

Business Tax Reform

The TCJA’s impact on businesses was equally significant. Perhaps the most talked-about change was the corporate tax rate, which dropped permanently from 35% to 21%. For smaller businesses, the introduction of the 20% pass through deduction allowed many owners of sole proprietorships, partnerships, and S-corporations to deduct a portion of their qualified business income, though with certain limitations and exclusions.

Another major incentive came in the form of bonus depreciation. Businesses can now deduct the full cost of qualifying property in the year it is placed into service, providing an immediate cash flow benefit.

Temporary vs. Permanent Provisions

One important detail often overlooked: many of the benefits for individuals are temporary. Unless Congress acts, provisions such as lower tax rates, higher standard deductions, and expanded credits will expire after 2025. In contrast, the corporate tax cuts are permanent, making them a lasting feature of the business tax landscape.

Final Thoughts

The Tax Cuts and Jobs Act reshaped the U.S. tax system and continues to affect both individuals and businesses across borders. For Americans in Canada, the stakes are particularly high. You must remain compliant with IRS requirements while also managing your Canadian obligations.

At Nordfiscus, we specialize in cross border tax planning and compliance. If you are unsure how the TCJA impacts your unique situation, reach out to us. We can help you navigate the complexities and make sure you are not leaving money or peace of mind on the table.