The traditional repatriation tax has been altered to allow business to bring money back into the US economy at a lower tax rate.
An FKD Feature exclusive

There are so many parts of taxes and tax law I don’t even slightly understand. I can wrap my mind around the basics of doing my own taxes, but I never seemed to grasp how much taxes can affect businesses. On the news, I have heard the phrase repatriation tax and not paid much attention to it. I mean, I struggled to pronounce repatriation for the first few times. But before you roll your eyes at me, ask yourself if you truly know what the repatriation tax is. It is important to understand this form of tax legislation since it is largely hindering companies that we utilize every day, especially since U.S. business has an estimated $2.6 trillion in overseas revenue.

What is repatriation?

The repatriation tax (pronounced ree-pay-tree-a-shun for anyone struggling like me) is processing foreign currency into your own country’s monetary system. The tax component is a one-time charge to return currency into your country of origin. Taxed money goes directly into the U.S. government and economy. The issue with the tax is how large it is. Companies traditionally pay a 35 percent tax to repatriate their profits. That means companies are paying large sums and losing money in order to change the currency of profits.

Who is this affecting?

Apple has an estimated $252.3 billion in corporate dollars overseas. They have not brought that money into U.S. currency because it would cost them a reported $38 billion due to the one-time repatriation tax. That’s a huge profit loss even for such a large company. Apple is waiting for a tax break to lessen the 35 percent tax so they can repatriate their funds without a large decrease. Other businesses affected include Citigroup, one of the leading global banks. They reported an $18 billion quarterly loss after they had to spend $22 billion in repatriation taxes. Most major banks are also dealing with repatriation tax, but new legislation is changing their options.

2017 tax bills effect

Companies did not use to have to pay taxes on overseas profits. But when they did ‘repatriate’ the funds, they would then have to deal with the 35 percent tax. But with the 2017 tax bill that was passed, companies now are being told to bring back their overseas money at a reduced rate of 8 percent during a specific timeframe. This will still mean a loss for companies, but not as great as previous taxation rates. This tax break will be highly beneficial to businesses that have large amounts of allocated funds overseas, as well as put more money back into the U.S. economy.

Takeaway

Taxes are known to be tricky to understand, especially with their levels of taxation and amendments to how tax-billing should operate. However, repatriation taxation has a large effect on companies and should be understood. By having business bring their revenue back into the U.S. economy, it might have a trickle-down effect on everyday life. And while business will still lose some of their profit by paying the tax, the reduced rate makes it a little more manageable.

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Posted 04.13.2018 - 12:00 pm EDT