The Foreign Service Journal - January/February 2018
74 JANUARY-FEBRUARY 2018 | THE FOREIGN SERVICE JOURNAL AFSA NEWS *All taxpayers are taxed equally on income falling within each tax bracket at the rate in that bracket, beginning with the first. So an individual taxpayer earning $38,700 pays 10 percent ($933) tax on the first $9,325 of income plus 15 percent on the next $28,625. **Same-sex couples legally married in a jurisdiction in which such marriages are permitted must file as married. ***Tax applied to gain on income from capital assets held for more than 12 months. which requires the taxpayer to be present in a foreign country for at least 330 full (midnight- to-midnight) days during any 12-month period (the period may be different from the tax year). Note: The method for calculating the tax on non- excluded income in tax returns that include both excluded and non-excluded income was changed, beginning in 2006, resulting in higher tax on the non- excluded portion. (See the box on page 78 for a full explana- tion.) Ex t en s i on fo r Ta x paye r s Ab r oad Taxpayers whose tax home was outside the United States on April 17, 2017, are entitled to an automatic two-month extension to June 15 to file their returns (without filing Form 4868). When filing the return, these taxpayers should write “Taxpayer Abroad” at the top of the first page of their 1040 form and attach a statement of explanation. There are no late- filing or late-payment penalties for returns filed and taxes paid by June 15, but the IRS will charge interest on any amount owed from April 17 until the date it receives payment. S t anda rd Dedu c t i on Taxpayers who do not itemize are entitled to take a standard deduction in the following amounts in 2017: Individual: $6,350 Married Filing Jointly: $12,700 Head of Household: $9,350 An additional amount is allowed for taxpayers over age 65 and for those who are blind. I t emi zed Dedu c t i on s Taxpayers itemize (1040 Schedule A) because they cannot take a standard deduction or because the itemized deduc- tions to which they are entitled are greater than the standard deduction. Unreimbursed employee expenses constitute one itemized deduction to the extent they exceed 2 percent of adjusted gross income (AGI). Professional dues and subscriptions to publications; employment and continuing education expenses; home office, legal, accounting, custodial and tax preparation fees; home leave, representational and other employee business expenses are all examples of this deduc- tion. The 2017 phase-out for itemized deductions begins at $261,500 AGI for unmarried individuals ($287,650 for head of household, and $313,800 for those married filing jointly). Home Leave and Un r e imbu r s ed Rep r es en t a t i ona l Ex pen s es These generally qualify as unreimbursed employee business expenses. They may be deducted as miscellaneous item- ized deductions and claimed on Form 2106, subject to a 2 percent floor for all deductible expenses and a 50 percent cap for business-related meals and entertainment. All unre- imbursed travel and lodging exceeding 2 percent of AGI may be deducted here. However, only the employee’s (not family members’) home leave expenses are deductible. AFSA recommends maintaining a contemporaneous 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 them a taxpayer may deduct only the federal meals-and-incidentals per diem rate at the home leave address, no matter how large the actual bill is. Lodging is deductible as long as it is not with friends, relatives or in one’s own home. The IRS will deny per diem and expenses claimed for family members. If a hotel bill indicates double rates, the single room rate should be claimed. Taxpayers should save the hotel’s rate sheet, if possible. Car rental, mileage and other unreimbursed travel expenses, including parking fees and tolls, may be deducted. The 2017 rate for business miles driven has dropped to 53.5 cents per mile. Those who estimate mileage expenses need not keep detailed records of actual mileage cost. They must, however, keep a contem- poraneous and detailed odometer log to justify the business use of the vehicle and track the percentage of business use. This optional mileage method also applies to leased vehicles.