Sabbaticals offer a unique opportunity for academics to recharge, explore new avenues, and enhance their professional growth. Thoughtful financial planning during your sabbatical can significantly impact your experience. Here are some key considerations to help you set expectations.
Incurring expenses
Typically, sabbaticals are times of increased spending and potential duplicated expenses. You might be renting housing in a new city and paying for travel and other expenses domestically or abroad. Whether or not you are still employed by your home university will determine what options may be available for treatment of sabbatical expenses.
If you are still employed by your home university there may be an opportunity to be reimbursed for expenses incurred during the sabbatical. This is particularly important to determine, because the Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed employee expense deductions. That is, if you are still on payroll and earning a wage, there is no tax or financial benefit to an expense if you are not reimbursed.
If, during the sabbatical, you are deriving income independently from new sources such as fellowships or project income, and are no longer paid a wage by your home university, then it may be possible to deduct some of your sabbatical expenses against this income.
In either case, it is important to keep good records and receipts for those expenses which are incurred, including travel, lodging, meals, incidentals, and any other non-personal expenses related to conducting business or research. Of course, expenses for fun or pleasure are typically not able to be reimbursed or deducted on your taxes.
filing Taxes
If you will be living and working outside of your home state or home country during the sabbatical, this will have tax consequences and, in many cases, require new tax forms to be filed.
Taxes while living in other states - Working in another state will require tax filings in that state, even if your presence is temporary. If you are being paid by your home university, they should be withholding state taxes for the “new” state from your pay. If you are earning fellowship or other consulting/project type income in another state, it’s important to realize there will be no withholding and that any tax bill will be due with the preparation of the tax return for that year(s).
Taxes while living in other countries – If you are living and working in another country, the situation can become more complex. There are two main factors that will determine the tax treatment.
Whether there is a tax treaty with the other country and the US
The duration of stay
Most tax treaties address visiting professionals and give additional rules about which country gets to tax income earned while abroad. Often they provide that so long as the duration of stay is 6 months or less, the “visiting” country won’t subject you to their tax system. If you visit a treaty county and stay longer than that applicable threshold, then you could be required to file a tax return in that country and pay taxes on income earned while there. If the country has no treaty with the US, then you must abide by local tax rules, which may involve filing a non-US tax return and paying foreign taxes. You would want to seek local tax help while on sabbatical, as it is rare for US accounting firms to be able to assist with preparation of other country’s tax returns, and more difficult to find help remotely once removed from the sabbatical location.
Whether the country requires you to file tax returns and pay taxes or not, there may be additional forms to file with your US tax returns.
Maintaining Your house
When living elsewhere for an extended period of time you will need to determine how to care for any home you maintain in your city of origin. If it will sit vacant, you will need to secure services to maintain the property in accordance with the season (i.e. snow removal and lawn care) and check on it periodically. In addition, it would be a good idea to let your insurance agent know you will be absent for an extended period. This may increase the premium but will prevent any issues with payment of claims should something happen while you are away.
If you plan to rent your home while you are gone, there are similar questions. Will the tenant perform maintenance tasks such as mowing and snow removal, or do these still need hired out? Who will determine what repairs are necessary while you are away, and who will perform those repairs? It can be difficult to find property managers willing to assist with one home, and on a temporary basis, so having plenty of time to prepare is key. Additional records need kept if renting your home, as this will add forms to your tax filings – rental income and expenses for the period of rental must be reported.
Other considerations
Estate planning – A big life change with increased travel may be a good time to review and update estate planning documents. It’s important to ensure beneficiary designation for retirement and other accounts are correct and match your wishes.
Benefits – sometimes the home university may limit or cease access to health insurance, retirement plans, or other benefits during the sabbatical. You may need to explore other health insurance options.
You don’t need to sort through these preparations on your own. Part of preparing for the sabbatical should involve getting the correct professionals to assist, whether they be a financial advisor, tax advisor, foreign tax preparer, insurance agent, property manager, etc.
Sabbaticals can be transformative experiences. By considering these financial aspects, preparing for the changes, and getting the right team in place, you can make the most of your time away.