The Foreign Service Journal, February 2008

46 F OR E I GN S E R V I C E J OU R N A L / F E B R U A R Y 2 0 0 8 A F S A N E W S resulting inahigher taxon thenon-exclud- ed portion. (See the box on page 48 for a fuller explanation.) To receive the exemption, the taxpayer mustmeet one of two tests: 1) the Physical Presence Test requires that the taxpayer be present in a foreign country for at least 330 daysduringany12-monthperiod(theperi- od may be different from the tax year); or 2)theBonaFideResidenceTestrequiresthat the taxpayer has been a bona fide resident of a foreign country for an uninterrupted periodthat includes anentire taxyear. Most Foreign Service spouses and dependents qualify under this test, but they must wait until they have been overseas for a full cal- endar yearbefore claiming it. Keep inmind that self-employed taxpayersmust still pay self-employment (Social Security and Medicare) tax on their income. Only the income tax is excluded. Extension for Taxpayers Abroad Taxpayerswhose taxhome isoutside the U.S. onApril 15get anautomatic extension until June 15 to file their returns. When fil- ing the return, these taxpayers shouldwrite “Taxpayer Abroad” at the top of the first page andattacha statement of explanation. There are no late filing or late payment penalties for returns filed and taxes paidby June15, but the IRSdoes charge interest on any amount owed fromApril 15 until the date it receives payment. Standard Deduction The standarddeduction is given tonon- itemizers. For couples, thededuction isnow $10,700 and for singles, $5,350. Married couples filing separately get a standard deductionof $5,350andhead-of-household filers receive a $7,850 deduction. An addi- tional amount is allowed for taxpayers over age 65 or blind. Most unreimbursedemployeebusiness expensesmust be reportedasmiscellaneous itemized deductions, which are subject to a threshold of 2 percent of AdjustedGross Income. These include professional dues and subscriptions topublications; employ- mentandeducationalexpenses;homeoffice, legal, accounting, custodial and tax prepa- rationfees; home leave, representational and other employeebusiness expenses; andcon- tributionstoAFSA’sLegislativeActionFund. Unreimbursed moving expenses are an adjustment to income, which means that youget todeduct themeven if you are tak- ing the standard deduction. However, the deduction includes only theunreimbursed costs ofmovingyourpossessions andyour- self 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 toa threshold of 7.5 percent of Adjusted Gross Income. Thismeans that tobedeductible, themed- ical costs would have to exceed $2,250 for a taxpayerwitha$30,000AGI. There is also an additional 3-percent reduction of item- ized deductions (excluding Schedule A deductionsformedicalexpenses,lossesfrom casualties and theft, and investment-inter- est losses) if theAGI exceeds$150,500. Note that this 3percent is applied to theAGI over $156,400 and not to the total of itemized deductions onScheduleA. Themaximum loss for 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 chari- table contributions to U.S.-based charities formost taxpayers. Donations to theAFSA Scholarship Fund are fully deductible as charitable contributions, as are donations to AFSA via the Combined Federal Campaign. Individualsmay alsodisposeof any profit from the sale of personal prop- erty abroad in this manner. For 2007 tax returns, any interest paid on auto or personal loans, credit cards, department stores and other personal interest will not be allowed as itemized deductions. Interest on educational loans will be allowed as an adjustment to gross income. If the above debts are consolidat- ed, however, and paid with a home equity loan, interest on the home equity loan is allowable. Mortgage interest is still, for the mostpart, fullydeductible. Intereston loans intendedtofinanceinvestmentsisdeductible uptotheamountofnetincomefrominvest- ments. Intereston loans intendedto finance a business is 100-percent deductible. Passive-investment interest on investments in which the taxpayer is an inactive partic- ipant (i.e., a limited partnership) can be deducted only from the income produced byother “passive income.” Intereston loans that do not fall into the above categories, Staff: Executive Director John Mamone: mamone@afsa.org Business Department Controller Twee Nguyen: nguyen@afsa.org Accounting Assistant Jon Reed: reed@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 Grievance Attorneys Neera Parikh: parikhna@state.gov and Holly Rich: richhe@state.gov Office Manager Christine Warren: warrenc@state.gov USAID Senior Labor Management Adviser Douglas Broome: dbroome@usaid.gov USAID Office Manager Asgeir Sigfusson: asigfusson@usaid.gov Member Services Director Janet Hedrick: hedrick@afsa.org Representative Cory Nishi: nishi@afsa.org Web-site & Database Associate: vacant 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 Ian Houston: houston@afsa.org Executive Assistant to the President Austin Tracy: tracy@afsa.org Scholarship Director Lori Dec: dec@afsa.org Professional Issues Coordinator Barbara Berger: berger@afsa.org Elderhostel Coordinator Janice Bay: bay@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 FSJ: journal@afsa.org PRESIDENT: naland@afsa.org STATE VP: kashkettsb@state.gov RETIREE VP: pamichko@aol.com USAID VP: fzamora@usaid.gov FCS VP: donald.businger@mail.doc.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 Naland STATE VP: Steve Kashkett USAID VP: Francisco Zamora FAS VP: Vacant FCS VP: Donald Businger RETIREE VP: Robert W. Farrand SECRETARY: F.A. “Tex” Harris TREASURER: Andrew Winter STATE REPS: Anne Aguilera, Oscar DeSoto, David Firestein, Jim McRea, Sandy Robinson, Shayna Steinger, Daphne Titus, Andrea Tomaszewicz USAID REP: Michael Henning FCS REP: Stephen Anderson FAS REP: Vacant IBB REP: Al Pessin RETIREE REPS: Barbara Bodine, Herman Cohen, Harry Geisel, David Passage