The Foreign Service Journal, February 2005

2 AFSA NEWS • FEBRUARY 2005 Standard Deduction The standarddeduction is given tonon- itemizers. It has been steadily increasing since 1987, but there was a big jump last year formarried couples filing jointly. For couples the deduction is now $9,700 and for singles, $4,850. Married couples filing separately get a standard deduction of $4,850andhead-of-household filers receive a $7,150deduction. Anadditional amount is allowed for taxpayersover age65orblind. Most unreimbursedemployeebusiness expensesmust be reportedasmiscellaneous itemized deductions, which are subject to a threshold of 2 percent of adjusted gross income. This includes professional dues and publications, employment and edu- cational expenses, home office, legal, accounting, custodial and tax preparation fees, home leave, representational andother employee business expenses, and contri- butions toAFSA’s LegislativeActionFund. Unreimbursed moving expenses are no longer an itemized deduction. Since Jan. 1, 1994, moving expenses have been an adjustment to income, which means that youget todeduct themeven if youare tak- ing the standarddeduction. However, the deduction has been narrowed to include only the unreimbursed costs of moving your possessions and yourself and your family to the new location. Medical expenses (includinghealthand long-term care insurance, but not health insurance premiums deducted from gov- ernment salaries) are subject to a thresh- old of 7.5 percent of adjusted gross income. Thismeans that tobe deductible, the medical cost would have to exceed $2,250 for a taxpayer with a $30,000 AGI. There is also an additional 3-percent reductionof itemizeddeductions (exclud- ingmedical, casualty, theft, and investment interest) if theAGI exceeds $142,700. This 3 percent is applied to the AGI over $142,700 and not to the total of itemized deductions onScheduleA. Themaximum loss of deductions is capped at 80 percent. State and local income taxes and real estate and personal property taxes remain fully deductible for itemizers, as are char- itable contributions (toAmerican charities only) formost taxpayers. Donations to the AFSAscholarship fundare fullydeductible as charitable contributions. Donations to AFSAvia theCombinedFederalCampaign are also fully deductible. Individuals may also dispose of any profit from the sale of personal property abroad in this manner. For 2004 tax returns, any interest paid on auto or personal loans, credit cards, department stores andotherpersonal inter- est will not be allowed as itemized deduc- tions. Interest on educational loanswill be allowed as an adjustment to gross income. If the above debts are consolidated, how- ever, and paid with a home equity loan, interest on the home equity loan is allow- able. Mortgage interest is, for themost part, still fully deductible. Interest on loans intended to finance investments is deductible up to the amount of net income frominvestments. Interest on loans intended to finance a business is 100-per- cent deductible. Passive-investment inter- est on loans inwhich the taxpayer is an inac- tive participant (i.e., a limitedpartnership) canbedeductedonly fromthe incomepro- ducedby other “passive income.” Interest on loans that donot fall into the above cat- egories, such as borrowing money to buy tax-exempt securities, is not deductible. Home Leave Expenses Employee business expenses, such as home leave andrepresentation,maybe list- edasmiscellaneousitemizeddeductionsand claimed on Form2106. In addition to the 2-percent floor, only 50 percent for meals andentertainmentmaybeclaimed(100per- cent for unreimbursed travel and lodging). Only the employee’s (not familymembers’) home leave expenses are deductible. Maintainingatravellogandretainingacopy of home leaveorderswill behelpful, should the IRS ever question claimed expenses. It is important to save receipts: without receiptsforfood,ataxpayermaydeductonly $31 to$51 aday (dependingupon the fed- eral meals and incidentals per diem rate at the home leave address), no matter how large thegroceryor restaurant bill. Lodging isdeductible, as longas it isnotwith friends, relatives, or in one’s own home. The IRS will disallowuse of per diemrates and any Staff: Executive Director Susan Reardon: reardon@afsa.org Business Department Controller Kalpna Srimal: srimal@afsa.org Accounting Assistant Steven Tipton: tipton@afsa.org Labor Management General Counsel Sharon Papp: papps@state.gov Labor Management Attorney Zlatana Badrich: badrichz@state.gov Labor Management Specialist James Yorke: yorkej@state.gov USAID Senior Labor Management Advisor Douglas Broome: dbroome@usaid.gov USAID Office Manager Asgeir Sigfusson: asigfusson@usaid.gov Grievance Attorneys Neera Parikh: parikhna@state.gov an d Joe Slotnick: slotnick@state.gov Office Manager Christine Warren: warrenc@state.gov Law Clerk Marques Peterson: petersonmo@state.gov Member Services Director Janet Hedrick: hedrick@afsa.org Representative Cory Nishi: nishi@afsa.org Web site & Database Associate Meijing Shan: shan@afsa.org Administrative Assistant Ana Lopez: lopez@afsa.org Outreach Programs Retiree Liaison Bonnie Brown: brown@afsa.org Director of Communications Thomas Switzer: switzer@afsa.org Congressional Affairs Director Ken Nakamura: nakamura@afsa.org Corporate Relations/Executive Assistant Austin Tracy: tracy@afsa.org Scholarship Director Lori Dec: dec@afsa.org Professional Issues Coordinator Barbara Berger: berger@afsa.org AFSA HEADQUARTERS: (202) 338-4045; Fax: (202) 338-6820 STATE DEPARTMENT AFSA OFFICE: (202) 647-8160; Fax: (202) 647-0265 USAID AFSA OFFICE: (202) 712-1941; Fax: (202) 216-3710 FCS AFSA OFFICE: (202) 482-9088; Fax: (202) 482-9087 AFSA WEB SITE: www.afsa.org AFSA E-MAIL: afsa@afsa.org AFSA NEWS: afsanews@afsa.org FSJ: journal@afsa.org PRESIDENT: limbert@afsa.org STATE VP: cranelk@state.gov RETIREE VP: jones@afsa.org USAID VP : wcarter@usaid.gov FCS VP: charles.ford@mail.doc.gov FAS VP: Laura.Scandurra@usda.gov AFSA News Editor Shawn Dorman : dorman@afsa.org (202) 338-4045 x 503; Fax: (202) 338-8244 On the Web : www.afsa.org/news How to Contact Us: Governing Board: PRESIDENT: John W. Limbert STATE VICE PRESIDENT: Louise K. Crane USAID VICE PRESIDENT: Bill Carter FCS VICE PRESIDENT: Charles A. Ford FAS VICE PRESIDENT: Laura Scandurra RETIREE VICE PRESIDENT: George F. Jones SECRETARY: F.A. “Tex” Harris TREASURER: Danny Hall STATE REPRESENTATIVES: Todd A. Kushner, Elizabeth Horst, Scot L. Folensbee, Tulinabo Mushingi, John C. Sullivan, Jim Wagner USAID REPRESENTATIVE: Thomas Olson FCS REPRESENTATIVE: William Crawford RETIREE REPRESENTATIVES: Gilbert Sheinbaum, David E. Reuther, Theodore S. Wilkinson, III, Stanley A. Zuckerman IBB REPRESENTATIVE: Laurie Kassman FAS REPRESENTATIVE: Michael Conlon