The Foreign Service Journal, January-February 2021
THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2021 59 AFSA NEWS 2020 Federal and State Tax Provisions for the Foreign Service The American Foreign Service Association is pleased to present the 2020 Tax Guide, your first step to self-help for filing 2020 tax returns. This annual guide summarizes many of the tax laws that members of the Foreign Service community will find relevant, including changes mandated by new legislation. The 2020 COVID-19 pandemic was an unwelcome surprise, but Congress took quick bipartisan action in the form of three new bills to support the U.S. economy and to help American families. Each bill was swiftly signed into law by the president. While we will not go into detail on each bill, we will discuss the resulting tax law changes that apply to the majority of our readers. Although we try to be accurate, this article reviews complex tax issues affect- ing many individuals differently. Readers should always follow up with IRS product pages for each form and publication men- tioned, which are designed as extensions of the PDF versions and instructions. Always check the applicability and “last reviewed” dates of these resources. Even then, statutes and case law are the only completely authoritative sources. Many credits, deductions or other calculations (e.g., depreciation, foreign asset reporting or 1031 exchanges) are best done by a professional competent in that area. Consultations with a tax professional for complete answers to specific questions are recommended; readers can- not rely on this article or the IRS website as a justification for their position on a tax return. In addition to highlights of new 2020 tax legislation affect- ing individuals, this year’s article will also provide readers with information on tax issues affecting investments in real estate, capital gains, alimony, the Foreign Earned Income Exclusion (FEIE), filings related to foreign assets and income and other important topics relevant for 2020 tax returns. Following the federal section is the state-by-state guide, which includes information on state domicile, income tax rates and retire- ment incentives. AFSA Senior Labor Management Adviser James Yorke (YorkeJ@state.gov) , who compiles the Tax Guide, would like to thank Christine Elsea Mandojana, CPA, CFP® of CEM Global Tax Planning, LLC, and her team for preparing the section on federal tax provisions. Thanks also to Hallie Aronson, Esq., and Shannon Smith, Esq., of Withers Bergman, LLP, for their contributions, particularly regarding foreign accounts and asset reporting. Filing Deadlines and Extensions The deadline for filing 2020 individual income tax returns is April 15, 2021. U.S. citizens and resident aliens living out- side the United States are allowed an automatic two-month extension for filing and paying federal taxes to June 15, 2021. To qualify for the June 15 automatic extension, a taxpayer must meet the following requirements: (1) on the regular tax return due date, the taxpayer is living outside of, and their main place of business or post is outside of, the United States and Puerto Rico (or the taxpayer is in the military or naval service on duty outside the United States or Puerto Rico); and (2) the taxpayer attaches a statement to the tax return specifying their qualifications for this automatic extension. Taxpayers claiming the extension should also write “taxpayer abroad” at the top of Form 1040. An additional extension to Oct. 15, 2021, may be obtained by filing Form 4868. Certain taxpayers claiming the FEIE on their federal tax return may qualify to extend their return using Form 2350 (instead of Form 4868) beyond the Oct. 15 deadline. Additionally, an extension to Dec. 15 may be available to certain overseas taxpayers who filed a Form 4868 but are unable to meet the Oct. 15 deadline due to certain qualifying circumstances. We recommend that you consult with a qualified tax professional before availing of these addi- tional extensions. Taxpayers who take advantage of a federal extension must also check their state filing deadlines to avoid inadvertently missing them, because many states do not con- form to the same federal extensions or extension deadlines. Although the IRS should not charge interest or late payment penalties for returns filed under the June 15 automatic deadline, they often do. The taxpayer generally must call the IRS to have the interest or late penalties removed. For returns extended beyond June 15, however, the extension granted to the taxpayer is an extension to file but not to pay. As such, the IRS will charge late payment penalties and interest for payments made after the April 15 deadline. Most states will likewise charge late pay- ment penalties and interest for tax payments made after the state’s initial tax filing deadline.