AFSA NEWS 58 JANUARY-FEBRUARY 2024 | THE FOREIGN SERVICE JOURNAL 2) Taxes, Including State and Local Property The TCJA limits itemized deductions for state and local taxes to $10,000 ($5,000 for married filing separately). For more on these provisions, refer to IRS Notice 2019-12, Treasury Decision 98-64, 26 CFR Section 1-170A-1(h)(3), Tax Topic 503, and IRC Section 164. 3) Charitable Contributions For 2023 returns, deductible cash contributions are limited to 60 percent of the taxpayer’s adjusted gross income. Contributions must be made to a qualified organization (e.g., a Section 501(c)(3) nonprofit organized in the U.S.). Taxpayers are required to retain documentary evidence (e.g., canceled checks or written communication from the charity) for all cash contributions. Non-cash contributions require a receipt regardless of the value of the contribution. For cash and noncash contributions of $250 or more, the charity must provide an official tax receipt along with an additional acknowledgment stating whether any goods or services were given in return for the donation. If any goods or services are received, the acknowledgment should provide a description and a good faith estimate of the goods or services received by the donor. Taxpayers must have the complete official tax receipt of contributions on or before the earlier of the date a return is filed or the due date (including extensions) for filing such return. Taxpayers obtaining receipts from a charity after these dates may be denied a charitable deduction. For non-cash contributions in excess of $500, the taxpayer must complete Form 8283 (Non-cash Charitable Contributions) and attach it to their Form 1040. Contributions over $5,000 require a written appraisal. For more information, AFSA recommends Tax Topic 506, Publications 526 and 1771, the Schedule A and Form 1040 instructions, and IRC Section 170. Conclusion Minor changes made to draft Form 1040 and the numbered schedules for 2023 were reviewed when writing this article. However, there may be additional changes to the final Form 1040 when it is released for 2023 tax returns. We encourage readers to monitor significant tax law changes that may be finalized in the coming months and retroactively applied to 2023 tax returns. While AFSA encourages its members to continue their tax education by reading the Internal Revenue Code, IRS regulations, and referenced IRS publications, there is no substitute for professional help for specific questions, particularly for complex international income and assets issues. Though not comprehensive, we hope this guide provides a useful summary of the significant tax laws and updates that may have an impact on your 2023 tax returns. Best wishes for the coming tax filing season. n 2023 STATE TAX PROVISIONS Liability Every employer, including the State Department and other foreign affairs agencies, is required to withhold state taxes for the location where the employee either lives or works. Employees serving overseas, however, must maintain a state of domicile in the United States where they may be liable for income tax; the consequent tax liability that the employee faces will vary greatly from state to state. Further, the many laws on taxability of Foreign Service pensions and annuities also vary by state. This section briefly covers both those situations. (In addition, see separate box on state tax withholding for State Department employees, and we encourage you to read the CGFS Knowledge Base article on the Tax Guide page of the AFSA website.) Domicile and Residency Many criteria are used to determine which state is a citizen’s domicile. One of the strongest determinants is prolonged physical presence, a standard that Foreign Service personnel frequently cannot meet due to overseas service. In such cases, the states will make a determination of the individual’s income tax status based on other factors, including where the individual has family ties, has been filing resident tax returns, is registered to vote, has a driver’s license, owns property or where the person has bank accounts or other financial holdings. In the case of Foreign Service employees, the domicile might be the state from which they joined the Service, where their home leave address is or where they intend to return upon separation. For the purposes of this article, the term “domicile” refers to legal residence; some states also define it as permanent residence. “Residence” refers to physical presence in the state. Foreign Service personnel must continue to pay taxes to the state of domicile (or to the District of Columbia) while residing outside the state, including during assignments abroad, unless the state of residence does not require it. Members are encouraged to review the Overseas Briefing Center’s guide to residence and domicile, available on AFSA’s website at https://afsa.org/domicile. Domestic Employees in the D.C. Area Foreign Service employees residing in the metropolitan Washington, D.C., area are generally required to pay income
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