It’s happened: You’ve won tenure and you’re finally eligible for a sabbatical. It’s your first real break in a long time, and an exciting chance to broaden your skills, meet new people, and maybe master a new culture in the process.
For the typical sabbatical, the choices are either half a year away at full pay or a full year away at half pay. Deciding which option to take from a financial viewpoint means first figuring out the right choice from a personal viewpoint.
So let’s weigh your options. The dullest, safest course is to stay home and try to pretend you’re unavailable to your department for half a year. There’s no financial loss, no complicated preparation, no moving expenses, taxes are easy, family disruptions are minimal, and you’ll get to finish that book that’s been taking much too long.
Sounds O.K., but is that what sabbaticals are really about? Are you really going to improve yourself culturally and spiritually by just hanging out in the same place where you’ve always been? Don’t kid yourself into thinking that routine duties will respect your space. Even if you walk around wearing a sandwich board that says “Leave me alone, I’m on sabbatical,” all kinds of seemingly important “ought to’s” are going to crowd in and you won’t find yourself being as productive as you’d hoped.
Face it, the overwhelming majority of people in the workplace will never have a chance for anything like an out-of-town sabbatical and would readily run over their grandmothers to get one. This is one of the great benefits of academic life. So leave town. Get out of Dodge. Maybe someone will miss you and you’ll be more appreciated when you return.
That leads to the choice of whether to go away for half a year or a full year. Being away for six months doesn’t really force you into a new space. You’re just on a visit, basically an extended vacation. But a year gives you all the seasons, and sheer loneliness is going to force you to mingle with the locals, maybe even long enough for them to appreciate your finer qualities as a scholar and a human being.
A lot of decisions can slide for a semester, but not so many for a whole year. After just a semester, you’re apt to come back to the office and find that all the hard decisions have merely been deferred because everyone knew you’d be back soon enough to deal with them. Not only will you have to get up to speed on your return, but you’ll also confront all the same thankless chores you would have had to do if you’d never left. But if you go away for a year, the people back home will have to deal with a lot of that stuff. Above all, you don’t want to return after one semester and find that some people never even realized you went away! So take the full year.
Finally there remains the choice of whether to leave the country or stay in the United States. The first consideration is to make sure you go far enough away that it’s a major inconvenience to come back. This will help protect the mental distance that you need. The worst choice would be to go someplace where you could just barely manage -- though it would be a real hassle -- to get back on weekends. This could be a recipe for not accomplishing much, not enjoying the new location, and not doing very well at keeping up with the things you thought you could manage from a distance. So get as far away as possible.
Even better than going cross country, however, is leaving the country altogether, and staying for a full 12 months. This provides the challenges of engaging with a new culture, working with different colleagues, and returning with a sense of personal growth and special knowledge. If losing half a year’s salary is an obstacle, get a fellowship that covers the other half of your salary, find a program where you’re going that pays, or fight for some additional support from your college or university.
Amazingly, the U.S. tax code understands the virtues of working abroad quite well, and offers a number of incentives to help you do just as we suggest.
First of all, if you leave town, everything is deductible (within certain limits) as a business expense. The price you pay for enjoying this incentive is having to keep excellent records to substantiate every such expense and being able to demonstrate to the Internal Revenue Service, if audited, that the sabbatical was a legitimate professional activity, not education or a vacation. If you don’t already, you’ll almost certainly want to take advantage of professional tax advice.
Not only does the tax code recognize the value of leaving the country, it strongly encourages that you do so for at least a year. How do we know that? Because up to $78,000 of foreign income (increasing to $80,000 in 2002) can be excluded from federal income tax if you stay away that long. This is called the “Foreign Income Exclusion.” To qualify, a U.S. citizen or resident alien must be out of the United States for at least 330 full days over a period of 12 consecutive months.
This helps make up for the fact that the cost of living in many foreign capitals may be higher than it is at home. A two-income couple could conceivably qualify for up to $156,000 of exclusion. “Unearned” income doesn’t count, such as dividends, interest, alimony, pension payments, and most rental income. If you are away less than a year, ordinary and necessary business expenses are deductible. If you go away for more than a year and elect to use the Foreign Income Exclusion, your expenses are only deductible proportionate to the amount of income you earn above the $78,000 maximum exclusion.
In addition to your sabbatical salary potentially being tax sheltered, the rules allow for a “Foreign Housing Deduction and Exclusion,” which may be of additional benefit. Tax treaties between the United States and most foreign countries generally exempt from foreign tax the wages of American professors teaching and conducting research abroad. But even if you do work that is taxable in the foreign country, this can be a credit or a deduction on your U.S. tax form.
So go for it.
Here are some additional pointers from seasoned leave-takers with the scars to prove it:
-
Renting your house out while you’re gone is, of course, a major undertaking, but the tax code again understands your pain and makes almost everything a business expense. There’s a lot of risk in bringing strangers into your home, so a good rental agent is worth paying for and is deductible. Under the right conditions, you can deduct more than the value of the rental income, so some people take that opportunity to throw in some repairs that would have to be done eventually. All of the costs of upkeep, many of which you would otherwise have to pay without the deductibility, become deductible while the house is rented, and you get to deduct depreciation.
-
Remember that withholding and retirement contributions will probably need to be adjusted considering the change in your earnings while away, and then readjusted afterwards. If your income for the sabbatical year declines by 50 percent, you won’t be able to contribute as much toward your retirement since the maximum permitted is proportional to the amount you earn. Depending on how this is allocated and paid, you may have to take steps to reduce the amount that you’re putting away for retirement during the two calendar years that are affected by a typical 12-month academic leave, and then increase the contribution again after you return.
-
Good planning is critical to making the time count. A few items to include in your checklist: obtain passports and visas; learn customs restrictions; and plan to pay all bills while you’re away, especially taxes.
-
Finally, create personal objectives for the sabbatical, not just professional ones, but don’t take on too much. There is a long period of adjustment in a new place, so you won’t be able to concentrate on work 50 hours a week until you’ve gotten settled. But the point of a sabbatical is not to work longer hours than ever merely because you’re freed from mundane distractions.
It would be impossible to cover all the issues related to taxation of foreign travel, so get the rules at the I.R.S. Web site. The bible on this is I.R.S. Publication 54, “Tax Guide for U.S. Citizens and Resident Aliens Abroad.” Being in residence in a foreign country is the key consideration for qualifying for the Foreign Income Exclusion. Unfortunately the U.S. possessions, such as Guam and the Virgin Islands, don’t count. Use Form 2555 to determine whether your trip abroad qualifies as foreign residence. For more on rental issues, get U.S. Tax Publication 527, “Residential Rental Property.”
Other references that may be useful: 1998 Tax Guide for College Teachers, by Allen Bernstein (out of print). For a comprehensive review of sabbatical issues, Purdue University has an excellent Web site. And for information about traveling with children, check out http://www.travelwithyourkids.com
John Vineyard, C.F.A., formerly an investment officer at Cornell University, left academe in 1992 to become president of Sunlake Investment Management, an investment counseling firm in Ithaca, N.Y.