Adjustments to Income(p6)

Adjusted gross income is your total income minus certain adjustments. The following adjustments are of particular interest to members of the Armed Forces.

If you are a member of a reserve component of the Armed Forces and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your unreimbursed travel expenses as an adjustment to income on line 24 of Form 1040, U.S. Individual Income Tax Return, rather than as a miscellaneous itemized deduction. Include all unreimbursed expenses from the time you leave home until the time you return home. The deduction is limited to the amount the federal government generally reimburses its employees for travel expenses. For more information about this limit, see Per Diem and Car Allowances in chapter 6 of Publication 463.

You are a member of a reserve component of the Armed Forces if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service.

If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. Then enter on Form 1040, line 24, the part of your expenses, up to the federal rate, included on Form 2106, line 10, or Form 2106-EZ, line 6, that is for reserve-related travel more than 100 miles from your home. Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21.

Captain Harris, a member of the Army Reserve, traveled to a location 220 miles from his home to perform his work in the reserves in April 2010. He incurred $1,520 of unreimbursed expenses consisting of $220 for mileage (440 miles × 50 cents per mile), $300 for meals, and $1,000 for lodging. He also had other deductible mileage expenses of $110 for several trips to a location 20 miles from his home. Only 50% of his meal expenses are deductible. He shows his total deductible travel expenses of $1,480 ($220 + $150 (50% of $300) + $1,000 + $110) on Form 2106, line 10. He enters the $1,370 ($220 + $150 + $1,000) for travel over 100 miles from home on Form 1040, line 24. He then subtracts that $1,370 from the amount on Form 2106, $1,480, and enters $110 on Schedule A (Form 1040), line 21.

Generally, you can deduct the lesser of the contributions to your traditional individual retirement arrangement (IRA) for the year or the general limit (or spousal IRA limit, if applicable). However, if you or your spouse was covered by an employer-maintained retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. The Form W-2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. The "Retirement plan" box should have a mark in it if you were covered.

For purposes of a deduction for contributions to a traditional IRA, Armed Forces members (including reservists on active duty for more than 90 days during the year) are considered covered by an employer-maintained retirement plan.

Individuals serving in the U.S. Armed Forces or in support of the U.S. Armed Forces in designated combat zones have additional time to make a qualified retirement contribution to an IRA. For more information on this extension of deadline provision, see Extension of Deadlines, later. For more information on IRAs, see Publication 590.

For IRA purposes, your compensation includes nontaxable combat pay. This means that even though you do not have to include the combat pay in your gross income, you do include it in your compensation when figuring the limits on contributions and deductions of contributions to IRAs.

A qualified reservist distribution is not subject to the 10% additional tax on early distributions from certain retirement plans.

A distribution you receive is a qualified reservist distribution if the following requirements are met.

• You were ordered or called to active duty after September 11, 2001.
• You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve component (see Member of a reserve component, earlier, under Armed Forces Reservists.)
• The distribution is from an IRA or from amounts attributable to elective deferrals under a section 401(k) or 403(b) plan or a similar arrangement.
• The distribution was made no earlier than the date of the order or call to active duty and no later than the close of the active duty period.

You may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined earlier) you received. You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. You make these repayment contributions to an IRA, even if you received the qualified reservist distribution from a section 401(k) or 403(b) plan or a similar arrangement.

Your qualified reservist repayments cannot be more than your qualified reservist distributions.

You cannot make these repayment contributions after the date that is 2 years after your active duty period ends.

You cannot deduct qualified reservist repayments.

The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution.

If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606, Nondeductible IRAs.

To deduct moving expenses, you generally must meet certain time and distance tests. However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests. You can deduct your unreimbursed moving expenses on Form 3903.

A permanent change of station includes:

• A move from your home to your first post of active duty,
• A move from one permanent post of duty to another, and
• A move from your last post of duty to your home or to a nearer point in the United States. The move must occur within 1 year of ending your active duty or within the period allowed under the Joint Federal Travel Regulations.

If you are the spouse or dependent of a member of the Armed Forces who deserts, is imprisoned, or dies, a permanent change of station for you includes a move to:

• The member's place of enlistment or induction,
• Your, or the member's, home of record, or
• A nearer point in the United States.

If the military moves you to or from a different location than the member, the moves are treated as a single move to your new main job location.

Do not include in your income the value of moving and storage services provided by the government because of a permanent change of station. Similarly, do not include in income amounts received as a dislocation allowance, temporary lodging expense, temporary lodging allowance, or move-in housing allowance.

Generally, if the total reimbursements or allowances that you receive from the government because of the move are more than your actual moving expenses, the excess is included in your wages on Form W-2. However, if any reimbursements or allowances (other than dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances) exceed the cost of moving and the excess is not included in your wages on Form W-2, the excess still must be included in gross income on Form 1040, line 7.

Use Form 3903 to deduct qualified expenses that exceed your reimbursements and allowances (including dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances that are excluded from gross income).

If you must relocate and your spouse and dependents move to or from a different location, do not include in income reimbursements, allowances, or the value of moving and storage services provided by the government to move you and your spouse and dependents to and from the separate locations.

Do not deduct any expenses for moving services that were provided by the government. Also, do not deduct any expenses that were reimbursed by an allowance you did not include in income.

If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.

You can deduct expenses (if not reimbursed or furnished in kind) for:

• Moving household goods and personal effects, and
• Travel.

You can deduct the expenses of moving your household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. You cannot deduct expenses for moving furniture or other goods you bought on the way from your old home to your new home.

You can include only the cost of storing and insuring your household goods and personal effects within any period of 30 consecutive days after the day these goods and effects are moved from your former home and before they are delivered to your new home.

You can deduct the expenses of traveling (including lodging but not meals) from your old home to your new home, including car expenses and air fare. You can deduct as car expenses either:

• Your actual out-of-pocket expenses such as gas and oil, or
• The standard mileage rate of 16.5 cents a mile.

You can add parking fees and tolls to the amount claimed under either method. You cannot deduct any expenses for meals. You cannot deduct the cost of unnecessary side trips or lavish and extravagant lodging.

A member of your household is anyone who has both your former home and your new home as his or her main home. It does not include a tenant or employee unless you can claim that person as a dependent.

A foreign move is a move from the United States or its possessions to a foreign country or from one foreign country to another foreign country. It is not a move from a foreign country to the United States or its possessions.

For a foreign move, the deductible moving expenses described earlier are expanded to include the reasonable expenses of:

• Moving your household goods and personal effects to and from storage, and
• Storing these items for part or all of the time the new job location remains your main job location. The new job location must be outside the United States.

Figure moving expense deductions on Form 3903. Carry the deduction from Form 3903 to Form 1040, line 26. For more information, see Publication 521 and Form 3903.