[Update: Starting in 2018, this deduction is no longer possible since umreimbursed employee expenses are no longer deductible since the TCJA was passed.]
Many physicians in training go away from their main site for a period of time. This may be a month, a few months, or even an entire year. Most of them aren't aware that nearly everything they spend on that trip may be tax-deductible. While residents/fellows might not be paying that much in tax anyway, every little bit of savings helps even more when you have a relatively low income. Here is how it works, straight from the IRS:
You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you cannot deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if you realistically expect that you will work there for more than one year, whether or not you actually work there that long. If you realistically expect to work at a temporary location for one year or less, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes.
- Temporary work assignment. Check.
- Different from your main place of business. Check.
- Away from home. Check
- Less than one year. Check
- No expectation of working in new location for more than one year. Check.
[Update: Be sure to read the comments section for a discussion of whether a one-year fellowship or rotating internship where your employer is in the new city should really be considered a “temporary work assignment.”]
What Is Deductible?
Here's what the IRS says:
Deductible travel expenses while away from home include, but are not limited to the costs of:
Travel by airplane, train, bus or car between your home and your business destination. (If you are provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero.)
Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel and the work location, and from one customer to another, or from one place of business to another.
Meals and lodging.
Tips you pay for services related to any of these expenses.
Dry cleaning and laundry.
Business calls while on your business trip (This includes business communications by fax machine or other communication devices).
Other similar ordinary and necessary expenses related to your business travel (These expenses might include transportation to and from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer).
Shipping of baggage, and sample or display material between your regular and temporary work locations.
Did you get all that? It's almost everything you spend. The airfare or mileage (57.5 cents a mile) to get there. The mileage while you're there. The rent you pay. The utilities you pay. Taxi or subway fare. Tolls. Parking fees. Even all the food you eat. Actually, you can only deduct 50% of the cost of meals. But the easiest way to calculate that is to use the standard IRS per diem ($71 a day in New York City.) So, if you're in NYC for a one year fellowship, that $71*50%*365 = a $12,957 deduction. The best part about it is you may be eating at the hospital or fixing peanut butter and jelly at home. Perhaps you only spent $3K on food that year. You still get the $13K deduction if you use the per diem method.
Since your fellowship is likely July to July, you use half of your deductions in one year and half in the next. Since you're not living at home, even the distance you drive from your apartment to the hospital is deductible. A 10 mile commute, each way, 6 days a week for 50 weeks is worth a $3,450 deduction. The rent you pay? Completely deductible. A cheap rental in NYC might be $2000 a month. $24,000 deduction.
Basically, if you're doing a fellowship or rotation in another location, you may be able to dramatically lower your tax bill.
Where Do You Take The Deduction?
Since you are an employee, you can't just take this deduction on Schedule C. These are basically unreimbursed employee expenses, so they go on Form 2106 and are then transferred on to Schedule A, line 21. The first 2% of your AGI is not deductible. But that's probably only ~$1,000 and we're talking about $20-30K in deductions. You do have to itemize of course.
Remember They're UNREIMBURSED Expenses
If your fellowship program is paying for the apartment or plane ticket, you can't claim it as an umreimbursed expense. The reason is that your employer is claiming it as a deduction, and you can't both have it.
Fellowships or rotations in another city or state can be a great educational experience. They can also represent significant additional expense. But at least those expenses are deductible!
What do you think? Have you taken this deduction for a required or optional rotation? How much did you save off your taxes? Comment below!