The Foreign Service Journal, January-February 2020
THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2020 65 AFSA NEWS 2019 Federal and State Tax Provisions for the Foreign Service The American Foreign Service Association is pleased to pres- ent this year’s Tax Guide, your first step to self-help for filing 2019 tax returns. This informational annual guide summarizes many of the tax laws that members of the Foreign Service community will find relevant, including changes mandated by the Tax Cuts and Jobs Act of 2017, most of which were active in 2018 and will have a noticeable impact this year. Although we try to be accurate, this article reviews complex tax issues affect- ing many individuals differently. Readers should always follow up with IRS product pages for each form and publication men- tioned, which are designed as extensions of the PDF versions and instructions. Always check the applicability and “last reviewed” dates of these resources. Even then, statutes and case law are the only completely authoritative sources. Many credits, deductions or other calculations (e.g., depreciation, foreign asset reporting or 1031 exchange) are best done by a professional competent in that area. Consultations with a tax professional for complete answers to specific questions are recommended; readers can- not rely on this article or the IRS website as a justification for their position on a tax return. This year, we’ve added a section addressing moving expenses and traveling in the Foreign Service, the various flavors of which touch different parts of the tax code. Read- ers will also find information on alimony, the Foreign Earned Income Exclusion, filings related to foreign assets and income, the qualified business income deduction, home mortgage interest and many other topics important for 2019 taxes. Fol- lowing the federal section is the state-by-state guide, which includes information on state domicile, income tax rates and retirement incentives. AFSA Senior Labor Management Adviser James Yorke ( YorkeJ@state.gov) , who compiles the Tax Guide, would like to thank Sam Schmitt, Esq., of the EFM Law Company and Christine Elsea-Mandojana, CPA, of Brenner & Elsea-Mando- jana, LLC, for preparing the section on federal tax provisions. Thanks also to Hallie Aronson, Esq., and Shannon Smith, Esq., of Withers Bergman, LLP, for their contributions, particularly with regard to foreign accounts and asset reporting. Filing Deadlines and Extensions The deadline for filing 2019 individual income tax returns is April 15, 2020. Anyone posted abroad is allowed an automatic two-month extension to file federal taxes on June 15. To use it, write “taxpayer abroad” at the top of your 1040 and attach a statement explaining that you are living outside the United States, and that your main place of business or post of duty is also outside the United States and Puerto Rico. This extension is federal only and does not apply to some state tax return items, such as the D.C. D-30 (for rental properties and unincorpo- rated businesses in the District). Taxpayers who take advantage of a federal extension must also check their state filing deadlines to avoid inadvertently missing them. An additional automatic extension to Oct. 15 may be obtained by filing Form 4868. The IRS is not supposed to charge inter- est or late payment penalties for returns filed under the June 15 deadline for those posted abroad, but they usually do. The taxpayer generally must contact the IRS to have the interest or late penalties removed. The IRS will charge late payment penalties and interest for returns filed with payments due under the Oct. 15 deadline, which is an extension to file but not an extension to pay. Report All Income on the New 1040 As has been the case for decades, U.S. taxpayers must report “all income from whatever source derived” on IRS Form 1040, which has been revised again this year. Adjustments, deduc- tions and credits remain matters of “legislative grace,” so it is important to understand those statutes, regulations, forms and instructions when you claim a credit or deduction. The new 1040 is longer than last year’s and is accompanied only by numbered schedules 1 through 3 and the same lettered schedules. There is no longer a tax penalty for failing to carry minimum health insurance coverage, so the check box for this item has disappeared. Commonly used tax credits, such as the earned income and child tax credits, are now on page 2 of the form. Schedule 1: Report additional income and adjustments, e.g., tax refunds or credits, alimony received for new divorces and settlements, business income or loss (see Schedule C), real estate or other organized business income (see Schedule E), educator expenses.