The Foreign Service Journal, February 2013

42 FEBRUARY 2013 | THE FOREIGN SERVICE JOURNAL AFSA NEWS given to non-itemizers. For couples, the deduction is now $11,900, and for singles, $5,950. Married couples fil- ing separately get a standard deduction of $5,950 each, and head-of-household filers receive an $8,700 deduc- tion. An additional amount is allowed for taxpayers over age 65 and for those who are blind. Most unreimbursed employee business expenses must be reported as miscel- laneous itemized deductions, which are subject to a thresh- old of 2 percent of Adjusted Gross Income. These include professional dues and sub- scriptions to publications; employment and educational expenses; home office, legal, accounting, custodial and tax preparation fees; home leave, representational and other employee business expenses; and contributions to AFSA’s Legislative Action Fund. Unreimbursed moving expenses are an adjustment to income, which means that you may deduct them even if you are taking the standard deduction. However, the deduction includes only the unreimbursed transporta- tion, storage and travel costs of moving your possessions and yourself and your family to the new location; it does not include meals. Medical expenses (includ- ing health and long-term care insurance, but not health insurance premiums deducted from government salaries) are subject to a threshold of 7.5 percent of Adjusted Gross Income. This means that to be deduct- ible, the medical cost would have to exceed $2,250 for a taxpayer with a $30,000 AGI. There is no reduction of item- ized deductions for higher income taxpayers for 2012. State and local income taxes and real estate and per- sonal property taxes remain fully deductible for itemizers, as are charitable contribu- tions to U.S.-based charities for most taxpayers. Dona- tions to the AFSA Scholar- ship Fund are fully deductible as charitable contributions, as are donations to AFSA via the Combined Federal Cam- paign. Individuals may also dispose of any profit from the sale of personal property abroad in this manner. For 2012 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. If such debts are consolidated, however, and paid with a home equity loan, interest on the home equity loan is allowable. Interest on educational loans will be allowed as an adjustment to gross income. Mortgage interest is still, for the most part, fully deductible. Interest on loans intended to finance investments is deductible up to the amount of net income from investments. Interest on loans intended to finance a business is 100-percent deductible. Passive-invest- ment interest on investments in which the taxpayer is an inactive participant (i.e., a limited partnership) can be deducted only from the income produced by other passive activities. Interest on loans that do not fall into the above categories, such as money borrowed to buy tax exempt securities, is not deductible. Home Leave Expenses Employee business expenses, such as home leave and representation, may be listed as miscellaneous itemized deductions and claimed on Form 2106. In addition to the 2-percent floor, only 50 per- cent for meals and entertain- ment may be claimed (100 percent for unreimbursed travel and lodging). Only the employee’s (not family mem- bers’) home leave expenses are deductible. AFSA recom- mends maintaining a travel log and retaining a copy of home leave orders, which will help if the IRS ever questions claimed expenses. It is important to save receipts: without receipts for food, a taxpayer may deduct only the federal meals- and-incidentals (M&IE) per diem rate at the home leave address, no matter how large the grocery or restaurant bill. Lodging is deductible, as long as it is not with friends or relatives, or in one’s own home. The IRS will disallow use of per diem rates and any expenses claimed for family members. If a hotel bill indi- cates double rates, the single room rate should be claimed; and, if possible, the hotel’s rate sheet should be saved CHILD CARE TAX CREDIT WHEN OVERSEAS Bear in mind that in order to claim the Child Care Tax Credit while serving overseas, you must submit IRS Form 2441, for which the instructions say: “For U.S. citizens and resident aliens living abroad, your care provider may not have, and  may not be required to get, a U.S. taxpayer identification number (for example, an SSN or EIN). If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider’s taxpayer identification number.” 2012 TAX GUIDE