The Foreign Service Journal, January-February 2022

AFSA NEWS 58 JANUARY-FEBRUARY 2022 | THE FOREIGN SERVICE JOURNAL For help in calculating withholding, the IRS built a with- holding estimator (www.irs.gov/W4App) . Please note this estimator may not work well for taxpayers with rental prop- erties, 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. FormW-4 no longer allows exemptions for dependents but does account for the child and other dependent tax credits available under current law. Standard Deduction The standard deduction has gone up slightly this year: • $25,100 married filing jointly (MFJ), • $18,800 for heads of household (HOH), specifically defined by Internal Revenue Code (IRC) Section 2(b), and • $12,550 for single taxpayers and married individuals fil- ing separately (MFS). The personal exemption remains $0 for 2021. Capital Gains for Sale of Capital Assets Such as Stocks & Similar Securities Determining the correct tax rate for capital gains requires taxpayers to first categorize their capital gains as short-term (gain from investments held for less than one year) or 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 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 unrecap- tured gains (explained in “Investments in Real Estate,” on page 59) . Finally, and closely related, an additional 3.8 percent net investment income tax may apply to some forms of invest- ment income, including some capital gains for taxpayers with modified adjusted gross income (AGI) above: • $250,000 for those MFJ or qualifying widow with a dependent child, • $200,000 HOH or single, and • $125,000 for those MFS. Virtual Currency In recent years, the IRS has placed increased scrutiny on virtual currency transactions. The draft 2021 Form 1040 illustrates this increased scrutiny by requiring taxpayers to confirmwhether the taxpayer received, sold, exchanged or otherwise disposed of any financial interest in any virtual currency during 2021. 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 at bit.ly/virtual-currency-transactions. Readers should particularly note that taxpay- ers who use virtual currency to pay for goods or services or who sell virtual currency must report