With Veterans Day just around the corner, it seemed a perfect time to thank all of those who have served our country and to answer some commonly asked tax questions from our military reservists. Today I’ll cover 3 of the more common areas; travel expenses, uniforms and early withdrawal from retirement accounts.
Travel expenses and tax
To fulfill their duty military reservists must travel to and from their reserve unit and often incur some travel related expenses. The question that pops up most often is related to the tax deductibility of these expenses. Usually, the travel required by reservists is limited as service is fulfilled at local reserve units. In these cases, when travel is limited to local trips to and from the reserve unit, travel expenses are generally not deductible. However, if the reservist is required to travel more than 100 miles to their post and they incur overnight travel expenses. These expenses can be deducted as an adjustment to gross income. Deductible expenses include;
* Unreimbursed expenses for transportation
* Meals (subject to a 50% limit)
Note that the deduction is limited to the amount the federal government pays its employees for travel expenses–so no fancy lodging and meals here.
This is in lieu of deducting those expenses as a miscellaneous itemized deduction (subject to a reduction equal to 2% of adjusted gross income). So, this deduction can be taken even if the reservist taxpayer does not itemize his/her deductions.
Another area of questions related to tax deductibility is uniforms. In general, expenses related to uniforms are not deductible. However, there are some very specific instances when these unreimbursed expenses are tax deductible. Here they are;
- Unreimbursed expenses related to uniforms are deductible if military regulations restrict the reservist from wearing their uniforms except while on duty as a reservist
- If the taxpayer is a student at an Armed Forces academy, the cost of insignia, shoulder boards, and related items are deductible. However, the cost of the uniforms is not deductible if they replace regular clothing
- Civilian faculty and staff members of a military school can deduct the cost of uniforms
If ordered or called to active duty, qualified reservists are permitted penalty-free withdrawal from IRAs, 401(k)s, and other retirement accounts. Of course, there are certain stipulations in order for this to apply. The distribution must be made during the time the reservist is on active duty. This starts with the call to active duty and continues through the close of active duty. Also, the active duty period must be more than 179 days or indefinite. Note that the penalty is waived but distributions are still taxable.
If you have questions related to these tax issues, please give me a call.
And thank you again to all who have served our great country.