The Foreign Service Journal, January-February 2021

60 JANUARY-FEBRUARY 2021 | THE FOREIGN SERVICE JOURNAL AFSA NEWS Form 1040 Has Been Revised for 2020 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. Adjust- ments, deductions and credits remain matters of “legislative grace,” so it is important to understand those statutes, regu- lations, forms and instructions when you claim a credit or deduction. The draft 2020 Form 1040 is similar to 2019 with some additions related to the COVID-19 legislation. Note that this article discusses the most recent draft as of the article publication date; the form may change before the final 2020 Form 1040 and accompanying schedules are approved. Schedule 1: Report additional income and adjustments, such as tax refunds or credits; alimony received for certain divorces (discussed later in this article); unincorporated or single-member LLC business income or loss (see Schedule C); rental real estate, royalties or other pass-through busi- ness income (see Schedule E); unemployment compensa- tion; and educator expenses. Schedule 2: Report additional taxes such as the alter- native minimum tax, self-employment tax and household employment taxes. Schedule 3: Claim nonrefundable credits such as the foreign tax credit, credit for child and dependent care, and education credits. The lettered schedules, commonly A through E, remain as follows: (A) Itemized deductions, e.g., medical and dental expenses, deductible taxes and interest paid, gifts to charity, casualty losses from a federally declared disaster, and oth- ers. Taxpayers should file Schedule A only if their itemized deductions are higher than the standard deduction for the tax year. (B) Interest, dividends, and foreign trusts and accounts. (C) Profit or loss from business (sole proprietors and single-member LLCs). (D) Capital gains and losses e.g., investment sales and certain capital gains from the sale of certain realty and vir- tual currency investments. (E) Supplemental income and loss from rental real estate, royalties, partnerships, S corporations, estates and trusts. Many other lettered schedules and incentive-specific forms (e.g., Form 8283 Noncash Charitable Contributions, Form 8889 Health Savings Accounts, Form 8938 Specified Foreign Financial Assets) and corresponding worksheets may be necessary. All are available from the IRS, most with corresponding product pages and instructions. AFSA recommends that members review the IRS Form 1040 information webpage, “About Form 1040, U.S. Indi- vidual Income Tax Return”; the Form 1040 Instructions; Publication 17, “Your Federal Income Tax”; and this year’s IRS Nationwide Income Tax Forums Online. 2020 Individual Income Tax Rates and Brackets 2021 Form W-4 Withholding Certificate Taxpayers usually do not think to revise their FormW-4 with- holdings until April or until they have paid their final 2020 taxes. Delaying a FormW-4 update may result in taxpayers withhold- ing taxes on their wages based on an old calculation for several months of 2021. Don’t wait. AFSA recommends readers revise their FormW-4 (using the new 2021 form) via their human resources office or through their employer’s online portal (e.g.,