The Foreign Service Journal, January-February 2023

AFSA NEWS 58 JANUARY-FEBRUARY 2023 | THE FOREIGN SERVICE JOURNAL 2022 Federal and State Tax Provisions for the Foreign Service The American Foreign Service Association is pleased to pres- ent the 2022 Tax Guide, your first step to self-help for filing 2022 tax returns. This annual guide summarizes many of the tax laws that members of the Foreign Service community will find relevant, including expiration of recent legislation and information on tax issues affecting investments in real estate, capital gains, alimony, virtual currency/ digital assets, the Foreign Earned Income Exclusion (FEIE), filings related to foreign assets and income, and other important topics relevant for 2022 tax returns. 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., depre- ciation, foreign asset reporting, or 1031 exchanges) are best done by a competent professional. Consultation with a tax professional for complete answers to specific questions is recommended; readers cannot rely on this article or the IRS website as a justification for their position on a tax return. Congress passed the Infrastructure Investment and Jobs Act on Nov. 15, 2021, followed by the Inflation Reduction Act (IRA) in 2022. These bills contained limited tax legislation affecting individuals. The Infrastructure Investment and Jobs Act updated some legislation related to virtual currency/ digital assets, as explained in the section on this topic below. The IRA extended certain energy tax credits and added new credits related to energy-efficient vehicles. This article does not discuss the IRA energy credits, so readers are encouraged to review the information at https://www.irs.gov/inflation- reduction-act-of-2022 and www.energystar.gov/about/ federal_tax_credits for more details on these credits. Following 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 assists with compiling the Tax Guide, would like to thank Christine Elsea Mandojana, CPA, CFP® of CEM Global Tax Planning, LLC, and her team for preparing the section on federal tax provisions. Thanks also to Hallie Aron- son, Esq., and Shannon Smith, Esq., of Withers Bergman, LLP, for their contributions, particularly regarding foreign accounts and asset reporting. Filing Deadlines and Extensions The deadline for filing 2022 individual income tax returns is April 18, 2023. U.S. citizens and resident aliens living outside the United States are allowed an automatic two-month exten- sion for filing and paying federal taxes to June 15, 2023. To qualify for the June 15 automatic extension, a taxpayer must meet the following requirements: (1) on the regu- lar tax return due date, the taxpayer is living outside of, and their main place of business or post is outside of the United States and Puerto Rico (or the taxpayer is in the mili- tary or Naval Service on duty outside the United States or Puerto Rico); and (2) the taxpayer attaches a statement to the tax return specifying their qualifications for this automatic extension. Taxpayers claiming the extension should also write “taxpayer abroad” at the top of Form 1040. An additional extension to Oct. 16, 2023, may be obtained by filing Form 4868. Certain taxpayers claiming the Foreign Earned Income Exclusion (FEIE) on their federal tax return may qualify to extend their return beyond the Oct. 16 deadline using Form 2350 (instead of Form 4868). An extension to Dec. 15 may be available to certain overseas taxpayers who filed a Form 4868 but are unable to meet the Oct. 16 deadline due to certain qualifying circumstances. We recommend that you consult with a qualified tax profes- sional before availing yourself of these additional extensions. Taxpayers who take advantage of a federal extension must also check their state filing deadlines to avoid inadvertently missing them, because many states do not conform to the same federal extensions or extension deadlines. Although the IRS should not charge interest or late pay- ment penalties for returns filed under the June 15 automatic deadline, they often do. The taxpayer generally must call the IRS to have the interest or late penalties removed. For returns extended beyond June 15, however, the extension granted to the taxpayer is an extension to file but not an extension to pay. As such, the IRS will charge late payment penalties and interest for payments made after the April 18