The Foreign Service Journal, January-February 2021

THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2021 61 Employee Express for State Department employees) as soon as possible. Promptly doing so will help you avoid overwithholding or playing catch-up due to underwithholding for several months. For help in calculating withholding, the IRS built a withhold- ing estimator ( www.irs.gov/W4App ). Please note this estima- tor may not work well for taxpayers with rental properties, those claiming the FEIE or for those who potentially have other complicated tax issues in their returns. Taxpayers with these complications should complete the worksheets provided with FormW-4 and/or consult a tax professional. Standard Deduction The standard deduction has gone up slightly this year: • $24,800 married filing jointly, • $18,650 for heads of household, specifically defined by Internal Revenue Code (IRC) Section 2(b), and • $12,400 for single taxpayers and married individuals fil- ing separately. The personal exemption remains $0 for 2020. Capital Gains for Sale of Capital Assets Such as Stocks and Similar Securities Determining the correct tax rate for capital gains requires taxpayers to first categorize their capital gains into short-term (gain from investments held for less than one year) and long- term (gain from investments held for one year or more). Next, taxpayers net their short-term capital gains (STCG) against their short-term capital losses (STCL), and their long-term capital gains (LTCG) against their long-term capital losses (LTCL). The results are taxed per the illustration below: Any net LTCG that results from this netting process is taxed at the capital gains rates in the table below: There are exceptions to these rates for certain types of capital gains, such as Section 1202 qualified small business stock, net capital gains from collectibles and Section 1250 unrecaptured gains (explained in the investments in real estate section of this article). Finally, and closely related, an additional 3.8-percent net investment income tax may apply to some forms of investment income, including some capital gains for taxpay- ers with modified adjusted gross income (AGI) above: • $250,000 for those married filing jointly or qualifying widow with a dependent child, • $200,000 head of household or single, and • $125,000 for those married filing separately. Virtual Currency In recent years, the IRS has placed increased scrutiny on virtual currency transactions. The draft 2020 Form 1040 illustrates this increased scrutiny by requiring taxpayers to confirmwhether the taxpayer received, sold, exchanged or otherwise acquired any financial interest in any virtual cur- rency during 2020. Additionally, virtual currency held in accounts outside the United States should be reported as a foreign asset on the FinCen114 (FBAR) and Form 8938 if reporting thresholds are met. In 2019 the IRS released guidance and FAQs related to virtual currency. These FAQs define virtual currency and provide guidance on taxable events related to virtual currency. The FAQs can be found here: https://bit.ly/virtual-currency- transactions. AFSA recommends consulting IRS Notice 2014- 21, Revenue Ruling 2019-24 and the FAQs to deter- mine the tax treatment, if any, of a transaction.