When you work for two employers and receive two W-2's, tax
form preparation isn't substantially different from the
(ahem) simple case we just finished looking at. But there
are some considerations that may lessen the tax you pay.
First of all, if you worked for two employers who paid you
a total of more than $37,800 in 1984, there's a good chance
that excess social security (FICA) was withheld from your
pay. Check to see that no more than a total of $2,532.60
was withheld; just add up the amounts on the line marked
FICA on your W-2's. The excess may be taken as a credit on
line 61, Form 1040.
Commuting to your second job (or second job location with
the same employer) from the first job is a deductible
expense on Form 2106—for itemizers and nonitemizers
alike. This deduction has been complicated somewhat,
however, by specific IRS rulings. For example, the service
judges that the principal place of business for a doctor is
both his or her office and the hospital. Hence
travel between isn't deductible. In addition, traveling
from a union hall to a job site isn't deductible.
If you have two jobs in different cities or general areas,
the question becomes, What is your principal place of
business? The entire city or general area of your principal
place of business is called your tax home (as opposed to
your residence) by the IRS, and the location of this base
can have profound effects on your taxes. For example, if
you work in two places that are so far apart that you have
to spend some nights sleeping at each location, you may be
able to deduct living expenses at the location that is not
your tax home. The location of your tax home is determined
by comparing (a) the amount of time spent working in each
area, to (b) the degree of your business activity in each
area, to (c) the amount of income you earn in each area.
This could lead to a situation where your residence is not
your tax home. If, for example, your main employment is in
a distant city, that's your tax home even though you travel
to your residence each weekend to be with your family. In
this case, the IRS would consider your residence to be
maintained for personal convenience. But (to stretch this
hypothetical situation one step further) let's say you
happen to have minor employment in the area of your
residence. Now you can deduct both your travel expenses
from your tax home to your residence area and also your
living expenses while there—including your part of
the costs of maintaining the household. Thus a portion of
your home and expenses while there become deductible. On
the other hand, you may not deduct any living expenses for
being in the area of your tax home.
Another peculiar situation for a tax home occurs when a
worker is on the road constantly. The IRS agent may
consider that such a person has no tax home and therefore
can't deduct expenses for business travel away from home.
There are three main criteria for establishing a tax home
in this case: (a) Some work is done in the vicinity of the
person's residence. (b) Rent is paid on the residence even
when the person is on the road. (c) The residence is in an
area where the person was raised or has lived for some
time, or a family member lives in the area.
If you and your spouse work in different locations, bear in
mind that you may have different tax homes, even if you
file a joint return.
What if you're assigned a temporary position by your
employer at a distant location? In order to maintain that
your original tax home continues as your tax home,
therefore making your travel and living expenses while on
assignment deductible, you'll have to prove that the
assignment was for a known limited length of time (less
than one year in one recent tax case), and that you've
maintained your original residence. Having a family at the
original residence (and tax home) is an important
You'll save enough for property in the country sooner not
only by holding two jobs to bring in more income but also
by paying close attention to taxes.
Where to Get IRS Forms and Publications
For free IRS materials, write to your area Forms
Distribution Center. If you don't know what you want, ask
for Publication 910, "Taxpayer's Guide to IRS Information,
Assistance, and Publications. "
NORTHEAST (Connecticut, Maine, Massachusetts, New
Hampshire, Eastern New York, Rhode Island, and Vermont):
P.O. Box 1040, Methuen, MA 01844.
WESTERN NEW YORK: P.O. Box 260, Buffalo, NY 14201.
MIDATLANTIC (Delaware, District of Columbia,
Maryland, New Jersey, Pennsylvania, and Virginia): P.O. Box
25866, Richmond, VA 23260.
SOUTHEAST (Alabama, Florida, Georgia, Mississippi,
North Carolina, South Carolina, and Tennessee): Caller No.
848, Atlanta, GA 30370.
MIDWEST (Indiana, Kentucky, Michigan, Ohio, and West
Virginia): P.O. Box 6900, Florence, KY 41042.
NORTH CENTRAL (Illinois, Iowa, Minnesota, Missouri,
Nebraska, North Dakota, South Dakota, and Wisconsin): P.O.
Box 24711, 1500 E. Bannister Rd., Kansas City, MO
SOUTH CENTRAL (Arkansas, Colorado, Kansas, Louisiana,
New Mexico, Oklahoma, Texas, and Wyoming): P.O. Box 2924,
Austin, TX 78769.
WEST (Alaska, Arizona, California, Hawaii, Idaho,
Montana, Nevada, Oregon, Utah, and Washington): P.O. Box
12626, Fresno, CA 93778.
A Glossary to Tax Terms
Accelerated cost recovery system (ACRS): A
method of depreciation for 3-, 5-, 10, and 18-year property
wherein the full percentage is allowed in the first year
(no matter when during the year the property was
purchased), varying percentages are allowed (as specified
in the instructions for Form 4562) in subsequent years, and
no percentage is allowed in the last year. Each year's
percentage is set by the IRS.
Accrual accounting: An accounting system
wherein income and expenses are listed at the time of
service, not of payment. Under accrual, you count income
you've earned but not yet received and expenses you've
incurred but not yet paid bills for. You can't switch
methods of accounting without permission from the IRS.
Adjusted gross income: The amount of your
total income that remains after adjustments—such as
moving expenses, employee business expenses, IRA or Keogh
payments, penalties for early savings withdrawals, alimony
paid, deductions for married couples with both working, and
disability income exclusion—are subtracted. This
amount must be reported on line 33 of Form 1040 and
precedes either itemized deductions or the standard
Allocation: A process wherein an expense
is divided between two situations. One part may be
deductible while the other isn't. For example, a portion of
the total cost of driving your personal automobile may be
deductible as a business expense: The total cost of driving
the car is allocated.
Amortization: A process similar to
depreciation wherein income (such as bonds bought at
discount) or expense (such as business startup costs) is
spread over several tax years.
Basis: The cost from which profit is
figured on the sale of property. Basis in a house, for
example, is the amount originally paid plus capital
improvements-minus depreciation allowed or taken.
Capital gain and loss: The profit or loss
from property held for investment is figured by capital
gain. Gains or losses from property held less than six
months are considered short-term and are fully taxable or
deductible (from other gains). Property sold after more
than six months is long-term, and gain or loss is reduced
to 40% of the amount.
Credit: Tax credits are deducted from the
amount of tax paid, not from income. They are taken on
lines 41 through 50 of Form 1040.
Deductions: Expenses declared on Schedule
A by individual taxpayers and Schedule C by the
self-employed. These may involve certain personal or
employee-related costs. The alternative to itemizing
deductions is the standard deduction (called the zero
Depreciation: A process by which a portion
of the value of property that will wear out, lose value, or
become obsolete may be deducted during each year of its
life. Accelerated cost recovery is a method of
Earned income: Money earned by gainful
employment-as opposed to dividends, interest, or capital
Exclusion: Certain types or portions of
income may not be taxable. Exclusions are sometimes the
same as adjustments.
Exemption: A consideration of the number
of people dependent upon a taxpayer, including the
First-year expensing: Up to $5,000 of the
cost of certain property bought for business use may be
deducted in the year purchased. Depreciation and investment
tax credit are alternatives.
Fiscal year: A 12-month accounting period
different from the calendar year. Taxes need not be filed
on the calendar year. A change of fiscal year must be
approved by the IRS.
Gross income: Total income before any
adjustments or deductions are subtracted.
Imputed interest: On certain transactions
where no (or low) interest was charged (such as zero
interest loans to family members), the IRS will calculate
interest at the imputed rate, which is determined daily by
the service itself.
Investment credit: 10% of the cost of
business property that will last five years or more may be
deducted in the year the equipment is purchased. Business
property that is figured to last three years (cars, for
example) entitles the purchaser to a credit equal to 6% of
Recapture: If property that is being or
has been depreciated is sold for more than the basis in
that property (cost, plus capital improvements, minus
depreciation), the portion of the difference equal to the
depreciation deduction must be reported as ordinary income.
Thus the depreciation is recaptured. See special rules for
recapture of first-year expensing if property is held less
than two years and for investment tax credit if property is
held less than five years.
Straight-line election: Property may be
depreciated by claiming an equal percentage of its cost in
each year of its life. For example, five-year property
would be claimed at a rate of 20% each year, assuming that
the property was put into service on January 1 of the first
year of depreciation.
Zero bracket amount: The name the IRS uses
for its alternative to itemizing deductions. (This formerly
was called the standard deduction.) If you do not itemize,
this amount is figured into the tax table you use. If you
do itemize, the zero bracket amount must be subtracted from
your total itemized deductions on Schedule A.