By Eric Hayes
Special to the Military Times (Army, Navy, Air Force, Marines)
January 31, 2006

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Attention, reservists. You can turn your travel mileage into an income tax deduction. Let's say I'm a reservist who lives in Bakersfield, Calif., and who drills in Fresno. If I chalk up 3,500 miles driving to drill during the course of a year, I can turn those miles into a tax deduction by using Form 2106.

In the past, the mileage expense on Form 2106 had to be deducted on Schedule A. The problem was that if you could't itemize deductions on Schedule A - usually because you had no mortgage interest and property taxes - you were't able to take the mileage deduction, either. The 3,500 miles I drove to drill was an expense I incurred without tax benefits.

Since then, however, Congress and the president realized that many reservists were incurring costs to attend drill but did't have enough deductions to itemize on Schedule A.

Reservists now can deduct the cost to attend drill using Form 2106, so long as they travel more than 100 miles from home to drill or perform other services as reservists. This is an above-the-line deduction and is a dollar-for-dollar deduction against wages and other income.

An above-the-line deduction starts at "Educator Expenses," line 23 of the 1040, and ends at the "Domestic Production Activities Deduction," line 35.

Expenses claimed between these lines are classified as an above-the-line deduction because they're above the taxpayer's adjusted gross income, line 37 of the 1040.

Unlike Schedule A expenses, which are not dollar-for-dollar deductions against your wages and other income, above-the-line deductions are.

Now, going back to the 3,500 miles I drove for drill. The mileage rate for 2005 was 40.5 cents from Jan. 1 through Aug. 31 and 48.5 cents from Sept. 1 through Dec. 31.

If my mileage were 1,500 miles through Aug. 31 and 1,500 miles after Aug. 31, my deduction would be $1,335 (1,500 multiplied by 40.5 cents plus 1,500 multiplied by 48.5 cents). If your actual cost comes to more than the standard rate, you can and should use your actual cost. Actual cost can be nonreimbursed air and/or ground travel, parking fees, etc.

If you are a reservist who was able to use Form 2106 expenses in past years on Schedule A, should you continue to do so? Generally, no. Whenever the IRS allows you to take an above-the-line deduction, you should. There are a few situations in which you should continue to itemize (such as when both spouses file separate returns and both must itemize deductions), but those situations are not the norm.

People who are not reservists cannot deduct Form 2106 expenses above the line.

An active-duty service member may deduct Form 2106 expenses on Schedule A if he has a part-time job and incurs some cost, such as bus fare, gas expenses or taxi fees, getting to the second job.

Also keep in mind, whether you are a reservist or active-duty service member, parking tickets and speeding violations are not considered deductible expenses when preparing Form 2106.

Eric Hayes is a senior tax analyst at www.taxbrain.com. E-mail him at ehayes@petzent.com or call him at (209) 835-2720, Ext. 2118.

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