Other Taxable Income
Some other income items that may apply to U.S. Government civilian
employees stationed abroad are discussed in this section.
Republic of Panama.
Income earned by any citizen or resident of the United States is
not exempt from U.S. tax by any section of the Panama Canal Treaty.
However, certain allowances can be excluded. See Allowances,
Differentials, and Other Special Pay, earlier.
Sale of personal property.
If you have a gain from the sale of your personal property (such as
an automobile or a home appliance), whether directly or through a
favorable exchange rate in converting the proceeds to U.S. dollars,
the excess of the amount received in U.S. dollars over the cost or
other basis of the property is a capital gain. Capital gains are
reported on Schedule D (Form 1040), Capital Gains and Losses.
However, losses from sales of your personal property, whether
directly or through an unfavorable exchange rate, are not deductible.
Sale of your home.
All or part of the gain on the sale of your main home, within or
outside the United States, may be taxable. (Losses are not
deductible.)
You may be able to exclude from income any gain up to $250,000
($500,000 on a joint return). You must have owned and used the home as
your main residence for two of the five years preceding the date of
sale.
If you sold your home before May 7, 1997, you may have taxable
income or you may need to report the sale (or purchase of a new home)
now if you postponed paying tax on the gain in the year of sale
because you intended to replace the home within the time allowed.
For detailed information on selling your home, see Publication 523.
Deductible Business Expenses
Deductions that may be of special interest to you are discussed
here. They include travel expenses, transportation expenses, and other
expenses connected to your employment.
Travel Expenses
Subject to certain limits, you can deduct your unreimbursed
ordinary and necessary expenses of traveling away from home
in connection with the performance of your official duties.
These expenses include such items as travel costs, meals, lodging,
baggage charges, local transportation costs (such as taxi fares),
tips, and dry cleaning and laundry fees.
Your home for tax purposes (tax home) is your regular post of duty
regardless of where you maintain your family home. Your tax home is
not limited to the Embassy, consulate, or duty station. It includes
the entire city or general area in which your principal place of
employment is located.
Traveling away from home.
You are traveling away from home if you meet both of the following
requirements.
- Your duties require you to be away from the general area of
your tax home substantially longer than an ordinary day's work.
- You need to get sleep or rest to meet the demands of your
work while away from home. This requirement is not satisfied by merely
napping in your car.
You do not have to be away from your tax home for a whole day
or from dusk to dawn as long as your relief from duty is long enough
to get necessary sleep or rest.
Temporary assignment.
If your assignment or job away from your tax home is
temporary, your tax home does not change. You are
considered to be away from home for the whole period, and your travel
expenses are deductible. Generally, a temporary assignment in a single
location is one that is realistically expected to last (and does in
fact last) for one year or less.
However, if your assignment or job is indefinite, the
location of the assignment or job becomes your new tax home and you
cannot deduct your travel expenses while there. An assignment or job
in a single location is considered indefinite if it is realistically
expected to last for more than one year, whether or not it actually
lasts for more than one year.
You must determine whether your assignment is temporary or
indefinite when you start work. If you expect employment to last for
one year or less, it is temporary unless there are facts and
circumstances that indicate otherwise. Employment that is initially
temporary may become indefinite due to changed circumstances. A series
of assignments to the same location, all for short periods but that
together cover a long period, may be considered an indefinite
assignment.
Exception for federal crime investigations or prosecutions.
If you are a federal employee participating in a federal crime
investigation or prosecution, you may be able to deduct travel
expenses even if you are away from your tax home for more than one
year. This exception to the one-year rule applies if the Attorney
General certifies that you are traveling for the federal government in
a temporary duty status to prosecute, or provide support services for
the investigation or prosecution of a federal crime.
Limit on meals and entertainment.
You can generally deduct only 50% of the cost of your unreimbursed
business-related meals and entertainment. However, the limit does not
apply to expenses reimbursed under a U.S. Government expense allowance
arrangement.
Individuals subject to hours of service limits.
You can deduct a higher percentage of your unreimbursed
business-related meal expenses if the meals take place during or
incident to any period subject to the Department of Transportation's
hours of service limits. The percentage increases to 80% by the year
2008, as shown in the following table.
Year |
Percentage |
2000-2001 |
60 |
2002-2003 |
65 |
2004-2005 |
70 |
2006-2007 |
75 |
2008 and later |
80 |
Individuals subject to the Department of Transportation's hours
of service limits include the following persons.
- Certain air transportation workers (such as pilots, crew,
dispatchers, mechanics, and control tower operators) who are under
Federal Aviation Administration regulations.
- Interstate truck operators and bus drivers who are under
Department of Transportation regulations.
- Certain railroad employees (such as engineers, conductors,
train crews, dispatchers, and control operations personnel) who are
under Federal Railroad Administration regulations.
- Certain merchant mariners who are under Coast Guard
regulations.
Primary purpose of trip must be for business.
If your trip was entirely for business, your unreimbursed travel
expenses are generally deductible. However, if you spend some of your
time on nonbusiness activities, part of your expenses may not be
deductible.
If your trip was mainly personal, you cannot deduct your travel
expenses to and from your destination. This applies even if you engage
in business activities while there. However, you can deduct any
expenses while at your destination that are directly related to your
business.
Expenses paid for others.
You generally cannot deduct travel expenses of your spouse,
dependents, or other individuals who go with you on a trip.
Home leave.
The Foreign Service Act requires U.S. citizens who are members of
the foreign service to take a leave of absence after completing 3
years of continuous service abroad. This period is called home
leave and can be used to take care of certain personal matters
such as medical and dental checkups, buying a new wardrobe, and
visiting relatives.
The amounts paid for travel, meals, and lodging while on home leave
are deductible as travel or business expenses subject to the rules and
limits discussed earlier. You must be able to verify these amounts in
order to claim them. Amounts paid on behalf of your family while on
home leave are personal living expenses and are not deductible.
More information.
See chapter 1 of Publication 463 for more information on travel
expenses.
Transportation Expenses
You can deduct allowable transportation expenses that are directly
related to your official duties. Transportation expenses include the
cost of transportation by air, rail, bus, or taxi, and the cost of
driving and maintaining your car. They do not include expenses you
have when traveling away from home overnight. Those expenses are
deductible as travel expenses and are discussed earlier.
Use of your car.
Whether you own or lease your car, you generally can use either of
two methods to figure your business car expenses: actual expenses or
the standard mileage rate.
If you use your car for both personal and business purposes, you
must divide your expenses between business and personal use. To
determine the business percentage, divide the business miles driven by
the total miles the car was driven for the year.
Actual expenses.
Under this method, you figure deductible car expenses using the
business percentage of your actual operating costs. These include
depreciation or lease payments (subject to certain limits), gasoline,
repairs, and similar expenses.
Standard mileage rate.
Under this method, you use a set rate per mile for each business
mile you drive. The rate is adjusted periodically for inflation. See
your tax form instructions to find the rate for the year you claim the
deduction.
If you want to use the standard mileage rate for a car, you must
choose to use it in the first year the car is available for use in
your business. Then in later years, you can choose to use the standard
mileage rate or actual expenses.
You cannot use the standard mileage rate if you:
- Use the car for hire (such as a taxi),
- Operate two or more cars at the same time (as in fleet
operations),
- Claimed a depreciation deduction for the car in an earlier
year using ACRS or MACRS,
- Claimed a section 179 deduction for the car, or
- Claimed actual car expenses after 1997 for a car you
leased.
Commuting.
You cannot deduct your transportation costs of going between your
home and your regular business location. These costs are personal
commuting expenses.
If you have one or more regular business locations but must work at
a temporary location, you can deduct the costs of commuting to that
temporary place of work.
If your employment at a work location is realistically expected to
last (and does in fact last) for one year or less, the employment is
temporary unless there are facts and circumstances that would indicate
otherwise. If your employment at a work location is realistically
expected to last for more than one year or if there is no realistic
expectation that the employment will last for one year or less, the
employment is not temporary, regardless of whether it actually lasts
for more than one year. If employment at a work location initially is
realistically expected to last for one year or less, but at some later
date the employment is realistically expected to last more than one
year, that employment will be treated as temporary (unless there are
facts and circumstances that would indicate otherwise) until your
expectation changes. It will not be treated as temporary after the
date you determine it will last more than one year.
If you work at two or more places in the same day, you can deduct
your expenses of getting from one place of work to the other.
More information.
For more information on transportation expenses, see chapter 4 of
Publication 463.
Other Employee Business Expenses
You may be able to deduct other unreimbursed expenses that are
connected with your employment.
Membership dues.
Membership dues you pay to professional societies that relate to
your business or profession are deductible.
Subscriptions.
Subscriptions to professional publications that relate to your
business or profession are deductible.
Educational expenses.
Generally, educational expenses are considered to be personal
expenses and are not deductible. However, under some circumstances,
educational expenses are deductible as business expenses.
You can deduct educational expenses as business expenses if the
education:
- Maintains or improves skills needed in your present
position, or
- Meets the express requirements of your agency to keep your
present position, salary, or status.
You cannot deduct educational expenses as business expenses if the
education:
- Is needed to enable you to meet minimum educational
requirements for qualification in your present position,
- Is a part of a program of study that can qualify you for a
new position, or
- Is for travel as a form of education.
These rules apply even if the education is required by your
agency or it maintains or improves skills required in your work.
See Publication 508, Tax Benefits for Work-Related Education,
for more information on educational expenses.
Educational expenses that are not work related, such as costs of
sending children to college, are personal expenses that you cannot
deduct. However, you may be eligible for other tax benefits such as
the higher education tax credits, contributions to an education IRA or
state tuition program, penalty-free withdrawals from traditional or
Roth IRAs, deduction for student loan interest, and exclusion from
income of certain savings bond interest. These benefits are explained
in Publication 970, Tax Benefits for Higher Education.
Foreign service representation expenses.
If you are an employee of the U.S. Foreign Service and your
position requires you to establish and maintain favorable relations in
foreign countries, you may receive a nontaxable allowance for
representation expenses. If your expenses are more than the allowance
you receive, you can deduct the excess expenses as an itemized
deduction on Schedule A (Form 1040) if you meet one of the following
conditions.
- You have a certificate from the Secretary of State attesting
that the expenses were incurred for the benefit of the United States,
and would be reimbursable under appropriate legislation if the agency
had sufficient funds for these reimbursements.
- You do not have a certificate described in (1) because the
expenses are specifically not reimbursable under State Department
regulations. However, the expenses do qualify as ordinary and
necessary business expenses in performing your official duties.
To deduct any expenses for travel, entertainment, and gifts,
including those certified by the Secretary of State, you must meet the
rules for recordkeeping and accounting to your employer. These rules
are explained in Publication 463.
Representation expenses.
These are expenses that further the interest of the United States
abroad. They include certain entertainment, gifts, costs of official
functions, and rental of ceremonial dress. They generally do not
include costs of passenger vehicles (such as cars or aircraft),
printing or engraving, membership fees, or amounts a principal
representative must pay personally to cover the usual costs of
operating and maintaining an official residence.
Chapters 300 and 400 of the Standardized Regulations
(Government Civilians, Foreign Area) provide more detail on what
expenses are allowable as representation expenses. These regulations
are available at U.S. Embassies and consular offices. You can also
find them on the internet at www.state.gov/ m/a/als. Click
on Section 920. Publication 463 and Publication 529,
Miscellaneous Deductions, provide more detail on what
expenses are allowable as ordinary and necessary business expenses.
Impairment-related work expenses.
If you are an employee with a physical or mental disability, you
can deduct attendant-care services at your place of work and other
expenses in connection with work that are necessary for you to be able
to work. Attendant care includes a reader for a blind person and a
helper for a person with a physical disability. These expenses are
reported on Form 2106 or 2106-EZ and carried to Schedule A (Form
1040). They are not subject to the 2%-of- adjusted-gross-income limit
on miscellaneous itemized deductions.
Loss on conversion of U.S. dollars into foreign currency.
The conversion of U.S. dollars into foreign currency at an official
rate of exchange that is not as favorable as the free market rate does
not result in a deductible loss.
Recordkeeping Rules
If you claim a deduction for unreimbursed business expenses, you
must keep timely and adequate records of all your business expenses.
For example, you must keep records and supporting evidence to prove
the following elements about deductions for travel expenses (including
meals and lodging while away from home).
- The amount of each separate expense for travel away from
home, such as the cost of your transportation, lodging, or meals. You
may total your incidental expenses if you list them in reasonable
categories such as daily meals, gasoline and oil, and taxi
fares.
- For each trip away from home, the dates you left and
returned and the number of days spent on business.
- The destination or area of your travel, described by the
name of the city, town, or similar designation.
- The business reason for your travel or the business benefit
gained or expected to be gained from your travel.
How to record your expenses.
Records for proof of your expenses should be kept in an account
book, diary, statement of expense, or similar record. They should be
supported by other records, such as receipts or canceled checks, in
sufficient detail to establish the elements for these expenses. You do
not need to duplicate information in an account book or diary that is
shown on a receipt as long as your records and receipts complement
each other in an orderly manner.
Each expense should be recorded separately in your records.
However, some items can be totaled in reasonable categories. You can
make one daily entry for categories such as taxi fares, telephone
calls, meals while away from home, gas and oil, and other incidental
costs of travel. You may record tips separately or with the cost of
the service.
Documentary evidence generally is required to support all lodging
expenses while traveling away from home. It is also required for any
other expense of $75 or more, except transportation charges if the
evidence is not readily available. Documentary evidence is a receipt,
paid bill, or similar proof sufficient to support an expense. It
ordinarily will be considered adequate if it shows the amount, date,
place, and essential business character of the expense.
A canceled check by itself does not prove a business cost. You must
have other evidence to show that the check was used for a business
purpose.
Your records must be timely.
Record the elements for the expense in your account book or other
record at or near the time of the expense. A timely-kept record has
more value than statements prepared later when, generally, there is a
lack of accurate recall.
Confidential information.
You do not need to put confidential information relating to an
element of a deductible expense (such as the place, business purpose,
or business relationship) in your account book, diary, or other
record. However, you do have to record the information elsewhere at or
near the time of the expense and have it available to fully prove that
element of the expense.
Previous | First | Next
Publication Index | 2002 Tax Help Archives | Tax Help Archives | Home