Publication 17
Your Federal Income Tax

For Individuals

For use in preparing 2002 Returns

Travel Expenses

You can deduct expenses for travel, meals (see 50% Limit on Meals, later), and lodging if:

1. You travel overnight to obtain qualified education, and
2. The main purpose of the trip is to attend a work-related course or seminar.

Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. For more information, see chapter 28.

You cannot deduct expenses for personal activities, such as sightseeing, visiting, or entertaining.

Mainly personal travel.   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities.

Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. An important factor is the comparison of time spent on personal activities with time spent on educational activities. If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location.

Example 1.   John works in Newark, New Jersey. He traveled to Chicago to take a deductible 1-week course at the request of his employer. His main reason for going to Chicago was to take the course.

Since the trip was mainly for business, he can deduct his round-trip airfare to Chicago. He cannot deduct his transportation expenses of going to Pleasantville. He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities.

Example 2.   Dave works in Nashville and recently traveled to California to take a 2-week seminar. The seminar is qualifying education.

He cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar.

Cruises and conventions.   Certain cruises and conventions offer seminars or courses as part of their itinerary. Even if the seminars or courses are work related, your deduction for travel may be limited. This applies to:

1. Travel by ocean liner, cruise ship, or other form of luxury water transportation, and
2. Conventions outside the North American area.

For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in Publication 463.

50% Limit on Meals

You can deduct only 50% of the cost of your qualifying meals while traveling away from home to obtain education. You cannot have been reimbursed for the meals.

Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit.

Travel as Education

You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business.

Example.   You are a French language teacher. While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. You chose your itinerary and most of your activities to improve your French language skills. You cannot deduct your travel expenses as educational expenses. This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities.

Expenses Relating to
Tax-Exempt and
Excluded Income

Some educational assistance you receive may be tax-exempt or excluded from your income. Since you do not pay tax on this income, you may not be able to deduct the related expenses. Examples of tax-exempt or excluded income include scholarships, veterans' educational assistance, and the Education Savings Bond Program. If you received assistance from any of these sources, see Expenses Relating to Tax-Exempt and Excluded Income in Publication 508.

Employer-Provided
Educational Assistance

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. This also means that you do not have to include the benefits on your income tax return.

You must reduce your deductible educational expenses by the amount of any tax-free educational assistance benefits you received for those expenses.

Educational assistance program.   To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.

Educational assistance.   Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. For courses beginning on or after January 1, 2002, the payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses.

Educational assistance benefits do not include payments for the following items.

1. Meals, lodging, transportation, or tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
2. Education involving sports, games, or hobbies unless the education has a reasonable relationship to the business of your employer or is required as part of a degree program.

Benefit over $5,250.   If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (box 1 of your Form W-2) the amount you must include in income.

Working condition fringe benefit.   However, if the payments also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense.

Where To Deduct
Expenses

Self-employed persons and employees report business expenses differently.

The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense.

Self-Employed Persons

If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (Schedule C, C-EZ, or F). If your educational expenses include expenses for a car or truck, travel, or meals, report them the same way you report other business expenses for those items. See the instructions for the form you file for information on how to complete it.

Employees

If you are an employee, you can deduct the cost of qualifying education only if you were not reimbursed by your employer or if the costs exceeded your reimbursement. (Amounts your employer paid under a nonaccountable plan and included in box 1 of your Form W-2 are not considered reimbursements.) How you treat any reimbursement you receive depends on the type of reimbursement arrangement and the amount of the reimbursement. For information on how to report your reimbursement, see chapter 28.

In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on line 20 of Schedule A (Form 1040). (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later in this chapter.) This deduction is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions.

Form 2106 or 2106-EZ.   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or Form 2106-EZ.

Form not required.   Do not complete either Form 2106 or Form 2106-EZ if:

• You were not reimbursed for any of your expenses, and
• You are not claiming travel, transportation, meal, or entertainment expenses.

If you meet both of these requirements, enter the expenses directly on line 20 of Schedule A (Form 1040). (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later.)

Using Form 2106-EZ.   This form is shorter and easier to use than Form 2106. Generally you can use this form if:

• You were not reimbursed for any of your expenses, and
• You are using the standard mileage rate if you are claiming vehicle expenses.

If you do not meet both of these requirements, use Form 2106.

Performing artists and fee-basis officials.   If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction.

For more information on qualified performing artists and fee-basis officials, see chapter 28.

Impairment-related work expenses.   If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on line 27 of Schedule A (Form 1040). They are not subject to the 2%-of- adjusted-gross-income limit.

For more information on impairment-related work expenses, see chapter 28.

Recordkeeping

You must keep records as proof of any deduction claimed on your tax return. Generally, you should keep your records for 3 years from the date of filing the return and claiming the deduction.

For specific information about keeping records of business expenses, see Recordkeeping in chapter 28.

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