The Foreign Service Journal, January-February 2024

THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2024 47 2023 Federal and State Tax Provisions for the Foreign Service The American Foreign Service Association is pleased to present the 2023 Tax Guide, your first step to self-help for filing 2023 tax returns. This annual guide summarizes many of the tax laws 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 for 2023 tax returns. Although we try to be accurate, this article reviews complex tax issues affecting many individuals differently. Readers should always follow up with IRS product pages for each form and publication mentioned, 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, 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, the Inflation Reduction Act (IRA) in 2022, and the Consolidated Appropriations Act in 2023 (CAA 2023). 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. The CAA 2023 included the SECURE 2.0 Act, which provides provisions that ensure more Americans can save for retirement and increase the amount they can save for retirement. 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 Aronson, 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 2023 individual income tax returns is April 15, 2024. U.S. citizens and resident aliens living outside the United States are allowed an automatic two-month extension for filing and paying federal taxes to June 17, 2024. To qualify for the June 17 automatic extension, a taxpayer must meet the following requirements: (1) on the regular 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 military 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. 15, 2024, 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. 15 deadline using Form 2350 (instead of Form 4868). An extension to Dec. 16, 2024, may be available to certain overseas taxpayers who filed a Form 4868 but are unable to meet the Oct. 15 deadline due to certain qualifying circumstances. We recommend that you consult with a qualified tax professional 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 payment penalties for returns filed under the June 17 automatic deadline, they often do. The taxpayer generally must call AFSA NEWS

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