In a previous post, “What Happens When a Professor Goes Overseas on Sabbatical?”, we discussed an example of a professor on sabbatical and looked at two options available to her: 1) use the foreign earned income exclusion, or 2) report all income as taxable and deduct the associated expenses. In the second option, the professor’s business travel and unreimbursed expenses (including unreimbursed lodging and meals) would have been reported on Form 2106 and included with itemized deductions as miscellaneous deductions, deductible to the extent that the aggregate of all miscellaneous deductions exceeded 2% of adjusted gross income (AGI).
With the passing of the Tax Cuts and Jobs Act, through tax year 2025 those miscellaneous itemized deductions subject to the 2% AGI floor are no longer allowed. Some expenses that fall under this category are unreimbursed business expenses, investment expenses, and tax preparation fees.
In our example, option two allowed the professor to report all income earned on sabbatical as taxable and to deduct associated unreimbursed business expenses as miscellaneous itemized deductions subject to the 2% AGI floor. Since the 2% deductions are no longer allowed, under option two she would now report the income from the sabbatical, but with no associated deductions.
This tax law change significantly affects which option would be more beneficial to a professor going abroad on sabbatical. It will impact how many days he or she chooses to be abroad, since number of days abroad impacts the ability to claim the foreign earned income exclusion (option one) instead.
With this change, along with many others, resulting from the Tax Cuts and Jobs Act, it is important to discuss the options available to you with a trusted tax adviser. Please do not hesitate to contact us so that a member of our International Tax Group can assist you.
By Sarah Acker, CPA