Understanding when you can deduct Reserve expenses

While for many of our National Guard and Reserve servicemembers, traveling to monthly Battle Assemblies right now is not an option, we do hope that in the near future we will be back to meeting together, in-person, as a unit. When the stop order movement is lifted, it is important that all servicemembers are aware of the tax rules around being able to deduct your out of pocket expenses for travelling to drill.

What is the Regulation?

The Tax Cuts and Jobs Act, which passed in 2017, suspended the ability of taxpayers to claim miscellaneous itemized deductions that exceed 2% of their Adjusted Gross Income, which included work expenses. However, the law still allows those tax-payers that fall into four categories to continue to deduct their expenses; Armed Forces reservists, qualified performing artists, fee-basis state and local government employees, and employees with impairment-related work expenses. In this article, we will focus on the Armed Forces Reservists; who qualifies, what expenses they can claim, and how to claim them on your tax return. We will also give some tips on how to best track your expenses throughout the year to make it easier on you come tax time.

What Service Members Can Claim the Expense Deduction?

Not all service members can claim the expense deduction, to qualify the Soldier must meet a couple tests; all of these questions must be a “yes” in order for you to claim your expenses.

Test 1: Were you employed as an Armed Forces Reservist who traveled more than 100 miles from your tax home to complete Reserve related duty? (For IRS purposes, a Reservist is a member of the Military Reserves, National Guard, or Public Health Service)
Test 2: Did you have job-related business expenses?
Test 3: Are your deductible expenses more than the total of your reimbursements for those expenses?
If you can answer yes to all three of these questions, then you are eligible to claim your expenses on your tax return.

What Expenses Can You Claim?

Vehicle Expenses

If you regularly drive over 100 miles to your Battle Assembly, you can claim vehicle expenses
The rate you can claim (For 2019) is 58 cents per mile driven
For example, if your Reserve Center is 100 miles away from your tax home, each month that you drive to your duty would create a deductible expense of $116
- 100 miles times .58 = $58
- $58 X 2 (round trip) = $116
Alternatively, instead of claiming the miles, you do have the option to claim actual expenses
Under actual expenses, you will keep detailed track of your auto related expenses such as gas, oil, repairs, insurance and then multiply this total amount by the percentage of miles driven for reserve duty versus non-reserved duty throughout the year
- For example, if you spent a total of $5,000 on vehicle expenses and the percentage of overall miles driven for reserve duty versus all miles driven is 1%, you could claim $50 as vehicle expenses for the year
- $5,000 times 1% = $50
It is important to note that if you are using the standard mileage rate, you must do so in the first year you use the vehicle for reserve travel, you can always switch to the actual expense method in later years

Parking Fees, Tolls, and Transportation that didn’t Involve Overnight Travel

If you drove to and from military duty on the same day without staying overnight, you can deduct parking fees, tolls, and transportation costs, to include train, bus, etc.

Travel Expenses for Overnight Stays

These expenses include lodging, airfare, car rental, etc.
Do not include meals in this category
You can include incidental expenses, which covers items such as fees and tips; instead of tracking actual incidental expenses, you can use the alternate method of $5/day, but you can only use this alternate method if you are claiming no meal expenses for the same day

Meals

You can deduct meal expenses for travel that keeps you away from your tax home overnight
You can use actual expenses or claim the standard meal allowance, which for most locations is $51/day, but may change based on the specific location of duty
Even if you are using the standard allowance, you still must keep records showing the time, place, and purpose of your travel
For deduction purposes, you will be able to claim 50% of expenses related to qualified meals

How Do You Claim the Deduction?

To claim the expenses on your tax return, you will need to file IRS Form 2106 with your return
You will use Form 2106 to report your expenses, reimbursements, and to calculate the total amount you can deduct
Once you or your tax preparer have completed Form 2106, it will give you a value that you can ultimately transfer to your 1040, reducing your tax liability for the year

Best Practices

Trying to figure out your expenses for the previous year when you do your taxes will be a time consuming and frustrating experience
To make this easy, you must build a process for tracking these expenses as you incur them, to help with this, I’ve shared a tracker that you can easily update and adapt to fit your specific needs here
Document, document, document…keep your receipts, they are your way of proving to the IRS that you incurred them and that you are accurately reflecting them on your return
Don’t confuse the tax deduction with your Inactive Duty Training (IDT) Travel reimbursement, they are two separate things, with two separate rules and regulations
- For example, the mileage rate you can claim and be reimbursed for on your IDT local voucher is 17 cents per mile, in contrast with the 58 cents per mile you can claim on Form 2106
You can’t “double-dip!” If the military reimburses you for those expenses, keep track of that as well as you will need to report the reimbursements on Form 2106

Deducting Reserve Expenses Example

CPT Smith is a US Army Reservist, who lives in Boston, MA but is assigned to a unit that is based in Fort Dix, NJ. He passes all three tests, allowing him to be able to deduct his reserve travel related expenses; his specific expenses are below for 2019.

Expense Category	Raw Numbers	Total Expense	Reimbursed Amount	Unreimbursed Expense
Vehicle	5000 miles drive	$2,900 (.58/mile)	$2,900	$0
Transportation (non-overnight)	N/A	$0	$0	$0
Overnight Travel Costs	$1,400	$1,400	$800	$600
Meals	$750	$750	$300	$225 (1/2($750-300)
Total		$4,675	$4,000	$825

As you can see from this example Form 2106, CPT Smith would be able to claim a $825 deduction on his 2019 return based on his reserve related travel expenses. Being a citizen Soldier isn’t easy and you have to make many sacrifices to continue serving, so at the same time you owe it to yourself to use the tax code to help ease some of the financial burden you incur in your service. While this may seem daunting to track and calculate all of this, in the end it can pay off, but don’t feel you have to do it alone. We make it our mission here to understand those tax issues that specifically affect members of our military so that we can best serve you. If you have questions about reserve related travel expenses or any other military finance related issue, do not hesitate to contact me or any of the financial advisors that belong to the Military Financial Advisors Association.