The Foreign Service Journal, January-February 2017

THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2017 63 Ex t en s i on fo r Ta x paye r s Ab r oad : Taxpayers whose tax home is outside the United States on April 18, 2016, are entitled to an automatic extension until June 15 to file their returns. When filing the return, these taxpayers should write “Taxpayer Abroad” at the top of the first page and attach a statement of explana- tion. There are no late-filing or late-payment penalties for returns filed and taxes paid by June 15, but the IRS does charge interest on any amount owed from April 18 until the date it receives pay- ment. S t anda rd Dedu c t i on : Taxpayers who do not itemize are entitled to take a standard deduction in the following amounts: 2016 Standard Deduction Individual $6,300 Married Filing Jointly $12,600 Head of Household $9,300 An additional amount is allowed for taxpayers over age 65 and for those who are blind. I t emi zed Dedu c t i on s : Taxpayers who itemize cannot claim the standard deduc- tion. However, itemizers gain the benefit of specific deduc- tions, including the deduction for unreimbursed employee expenses on 1040 Schedule A. These are deductible to the extent they exceed 2 percent of adjusted gross income (AGI). Some examples of unreimbursed employee expenses include professional dues and subscriptions to publications; employ- ment and continuing education expenses; home office, legal, accounting, custodial and tax preparation fees; home leave, representational and other employee business expenses. In 2016, the IRS will phase out itemized deductions a taxpayer is allowed at certain income thresholds. Unmar- ried individuals earning more than $155,650 individually ($259,400 head of household, $311,300 married filing jointly) should contact a tax professional to calculate the limits on their itemized deductions. Med i ca l and Den t a l Ex pen s es : Taxpayers who itemize can deduct medical expenses to the extent they exceed 10 percent of AGI (including health and long-term care insurance, but not health insurance premiums deducted from government salaries). If the taxpayer is over 65, the threshold at which this deduction can be claimed remains at 7.5 percent until Jan. 1, 2017, after which, the threshold increases to 10 percent for all taxpayers. Un r e imbu r s ed Mov i ng Ex pen s es : Taxpayers who itemize and those who claim the standard deduction may claim unreimbursed moving expenses as an adjustment to income. Unreimbursed moving expenses include the cost of transportation, storage and travel costs of moving the taxpayer, possessions (including pets) and the taxpayer’s family. The cost of meals during the move does not qualify. Other adjustments itemizers and non-itemizers may claim include contributions to pre-tax IRAs, alimony pay- ments, bad debt, student loan interest, tuition and fees and educator expenses. Each may be subject to its own limits. Dedu c t i b l e Ta xes : There are only four kinds of deductible non-business taxes: (1) State, local and foreign income taxes; (2) State and local general sales taxes; (3) State, local and foreign real estate taxes; and (4) State and local personal property taxes. The taxpayer must itemize (using 1040 Schedule A) and must have been charged and actually paid the taxes to be entitled to these deductions. * Marginal rates apply to income in excess of each of the prior tax brackets. ** Income thresholds for those married filing separately are half of those who are married filing jointly. Same-sex couples who were married in or after tax year 2013, in a state where it is legal, must file their federal tax return as either married filing jointly or married filing separately, not individually. *** Refers to long-term capital gains—gains from the sale of property held for greater than 12 months.