another tax question?

[Shark]

This is the situation:
Currently working for a 135 operator who pays 30 a day in meal allowances with restriction based on time/duty, (7 bk-fast, 8 lunch, 15 dinner). These are my questions?

1 - I’m required to have a personal credit card to place my personal expenses on (meals, hotel, etc), is the annual fee tax deductible if the only thing I use this card for is business related travel expenses?

2 – I depart from my regular base at 3pm for an hour flight (say IAD) and over night there. The company will reimburse $15 for dinner, the entire amount for the hotel and any tip under $5. Can I deduct the difference between what ever the rate is for IAD and what is was reimbursed? Or do I take 75% of the rate for IAD and the difference? Now I spend one full day in IAD before departing the next, I can take the full amount for IAD for meals, correct?

3 - I depart from my regular base driving to another airport for assignment. I’m reimbursed for the miles but want to know if any thing else is?
Typical trip under this situation:
Depart principal base for 1 hours drive to another airport for assignment
1 hour show time before departure
1-hour flight
1 hour show before next departure with pax
1-hour flight drop pax
30 min flight back to original departure point
30-post flight
1 hour’s drive back to principal base hope this makes sense

Usually I get one meal out of this bk-fast or dinner, can I take a deduction for meals at any location?

4 – added my ATP early this year, already employed with this co., is this deductible?

Thanks for all your help in advance

 

[bobbysamd]

Tax deductions

I'll start with the last one first. Of course, all these deductions assume that you itemize your deductions.

Absolutely, you can deduct your ATP as long as you paid for it yourself. You can deduct it as as a business expense. For that matter, one of my favorites, the type rating, is fully deductable, but you have to be established in the profession.

I'm not sure if I understand exactly what you mean by "principal base." Unless you respond otherwise, I'll assume you mean home or your crashpad. I don't believe you can count mileage from home/crashpad to work. However, you can deduct mileage from work to the other airport and back. After you're off duty, your mileage from work to home/crashpad would not be deductable.

As far as I know, you can deduct the difference of any work-related expenses not reimbursed by the company. So, let's say you get $20 per diem and your out-of-pocket is $30, the difference is $10, which you can deduct. I don't know about the 75% you mention.

Finally, I would say that you can deduct the annual credit card fee as long as you use it for business expenses only and as long as the company requires it. Be very careful not to comingle personal charges with company charges on the credit card, and be sure to save all your receipts and statements. If you comingle the two, be prepared to do some explaining to the IRS.

Hope that helps a little.

 

[pilotmom]

First, you need to get some forms/pubs for the full story. Start with Publication 529 Miscellaneous Expenses and Publication 463 Travel Entertainment, Gift and Car Expenses. You'll also need Schedule A 1040 and 2106 or 2106EZ Employee Business Expenses. You can view or download these from www.irs.gov - the friendly people Really, they are.

Before you even start looking though, unless you itemize deductions, this "ain't gonna help". Let's assume you can itemize.

QUestion #1. YES. Credit card annual fee - assume 100% business use. Annual fee deductible subject to 2% Adjusted Gross Income limitations rule. (Add all these up and the part that is over 2% of your AGI can be included as an itemized deduction)

"You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2%-of- adjusted-gross-income limit. These are expenses you pay: 1. To produce or collect income that must be included in your gross income, 2. To manage, conserve, or maintain property held for producing such income, or 3. To determine, contest, pay, or claim a refund of any tax. You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes."

Question #2. First, you have to define your tax home. More than likely that is where you are based for work, not where you live. "Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located."

Assuming you are traveling AWAY from your tax home, as a pilot you can use the alternative rule for transportation workers with respect to meals. That makes life much less confusing. You don't have to remember where you are or were.

"Special rate for transportation workers. You can use a special standard meal allowance if you work in the transportation industry. You are in the transportation industry if your work:
1. Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and 2. Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates.
If this applies to you, you can claim a $38 a day standard meal allowance ($42 for travel outside the continental United States).
Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. " CLEAR AS MUD, eh? It gets better!!

"50% limit may apply. If you use this method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. "

BUT WAIT, you're a transportation worker - a special rule applies to you.

"Individuals subject to "hours of service" limits. You can deduct a higher percentage of your meal expenses if the meals take place during or incident to any period subject to the Department of Transportation's "hours of service" limits. The percentage is 60% for 2001, and it gradually increases to 80% by the year 2008.

Individuals subject to the Department of Transportation's "hours of service" limits include the following persons.

Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations.
Interstate truck operators and bus drivers who are under Department of Transportation regulations.
Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations.
Certain merchant mariners who are under Coast Guard regulations. "

First, you can only consider the part that you are not reimbursed for. $38-30 at least for some days. It appears as if your employer has an accountable plan (you have some requirement to account for your expenses in general) AND then you'll only get a % of that $8 extra per day you can use. But hey, it's more than $0. That is if it gets you above the 2% AGI rule when all is said and done!!

It's not clear to me if, as a transportation worker, you are subject to the 75% rule for day of departure and day of return. I think the special transportation rule replaces the standard meal rule but I'd have to do more research to me sure. Just a hunch though that you are under the special rules, not the standard.

Basically, the answer is you can deduct the difference between the $38/day and what you were reimbursed counts and then 60% or more of that.

Question #3 - Don't see anything other than standard mileage which they appear to be paying for you so no more deduction but hey, didn't you do laundry while you were waiting?

"Work Clothes and Uniforms
You can deduct the cost and upkeep of work clothes if the following two requirements are met. 1. You must wear them as a condition of your employment. 2. The clothes are not suitable for everyday wear. " Pilot uniforms count for this. And this is not only when you are in travel status.

Meals for the day in question depend on whether you are considered to be in travel status - away from your tax home overnight. I'd guess not...unless the weather craps out and you have to stay over. Otherwise, it's just like going to work at any 9-5 job, you can't deduct lunch!

Question #4 - YES - Employee Educational Expense.

"Education That Is Work Related
You can deduct expenses you have for education, even if the education may lead to a degree, if the education meets at least one of the following two tests.
1. It maintains or improves skills required in your present work.
2. It is required by your employer or the law to keep your salary, status, or job, and the requirement serves a business purpose of your employer.
If your education meets either of these tests, you can deduct expenses for tuition, books, supplies, laboratory fees, and similar items, and certain transportation costs. "

I think that's your list. Don't forget other items that you might have to pay such as those map things you need, jepps?, flightbag, kneepad toys, headphones, and so forth. Some might be considered depreciable expenses and I'm not sure we even want to go there on a Friday night.

Hope this helps and doesn't confuse you more. Let me know where to mail the cake with the file inside.

I GOTTA GET A LIFE.

 

[alimaui]

How long after one files should it take to get your return?

Dont ask, yes I just filed...

Ali

 

[bobbysamd]

Tax deductions

Great answer, Pilotmom. I forgot about the IRS pub. I should say up front that the IRS looks at taxpayers on a case-by-case basis. Unlike law, where you follow precedent. Having said, that your tax lawyer or accountant should have access to IRS Private Letter Rulings, which will at least give an informed indication on the IRS' position on various issues.

Other things you can deduct: pilot magazines, professional organization memberships, AOPA membership, books, manuals, etc. I would deduct unreimbursed lodging and meals during class or training. FAA medicals, but not under the top line on Schedule B. CAP membership - I think that would work as a charitable deduction because it is a non-profit, etc.

Ali, do you mean refund? Probably six weeks or so.

 

[Flic1]

Don't forget to deduct that $120 pair of Oakley sunglasses!!

 

[Timebuilder]

A few years back, I flew a friend down to AOPA HQ for a sit down at their legal office, Yodice Associates.

The AOPA membership is specifically excluded from deductibility, because they lobby congress using some of the dues money. If they have been able to determine how much of dues is used for this, then you could deduct the amount not used for lobbying.

The companion organization, the Air Safety Foundation, does not lobby, and is fully deductible as a professional association.

Because of the complexity of these matters, I use an attorney who is also a CPA. He knows the "red flags" to avoid, menaning that you can do a whole range of things on your return which are "perfectly legal", but would set off bells and whistles at the IRS, and your return would be flagged for an audit, a painful and confrontational experience to say the least. The art of doing this kind of work well is to "stay under their radar" by not drawing this kind of attention to yourself.

 

[pilotmom]

The idea is to file a timely accurate return....being in compliance. For the average pilot income, the odds of being selected for an audit are extremely slim. Office in the home is one of those "triggers" that is highly abused and looked and may result in a "closer look".

What will catch you up is to not include an item of income that is reported to the IRS, such as 1099s for interest, misc work, etc. Forget those and the most you'll get is a notice called a proposed change. Says "here's what you reported, here's what others say you made." They'll change to what is reported unless you should that it is incorrect. And that is often the case and is easily corrected.

How aggressive you want to be on deductions that may be "iffy", is a personal risk and actually one of being more of a hassle later than a true problem. Remember a 100 deduction is probably worth 15-28 for most of us. So the most later, would be to repay the 15-28 with some interest and probably/possibly no other penalty or not enough to matter.

If you know it's wrong, don't claim. If not sure, research it and if feel its more probable than not, go for it realizing if you're questioned later (usual 18 months after filing), you'll have to show why you feel it is justified. If you've done your homework, , you'll probably win. It'll all be my mail and not an in person audit. And if after 3 years of filing, no one has asked, you're in the clear (assuming again, you're not being outright fraudelent - that's a different story).

Turbo Tax or similar products work for the average pilot without resorting to a costly atty/CPA expense. (Of course, that's deductible) Specific questions can be emailed to IRS and the answers obtained can document your position.

And if you can get those Oakley's with a slight RX in them, they're medical...but that's only to the extent their over the 7.5%AGI.

 

[Timebuilder]

That's good advice, but having worked in two industries with specific income and deduction structures, there is a question you have to ask yourself: how much is my time worth? For a busy pilot, it may be that a reasonable preparer is a good investment.

Second, who will represent you if you go in for an in-person audit? Middle income audits are UP. Will your software allow you to take only legal deductions? Almost certainly. If you have low personal expenses, and you spend a very large portion of you net income on, say, a type rating, will the software allow this? Probably. Will it flag at the IRS? Maybe. One of the triggers is deductions that make a very large reduction in taxable income, such as a $12,000 type. Does this mean that anyone who has large deductions gets audited? NO! It simply means that a certain percentage of returns who will get a "by mail" resolution MAY get a sit-down audit. Just like that state trooper sitting by the side of the road on the 30th of the month, looking for speeders and expired inspection stickers, IRS agents have numeric thresholds that need to be satisfied with investigative actions.

My preparer has about 40 years experience in dealing with the feds, and knows just how to handle any problem items. For a very low cost, I sleep VERY well while my return makes its way through the service center machinery. That kind of peace of mind is hard to come by, nowadays. I think that feeling is worth its weight in gold.

 

[pilotmom]

I have to agree with you in almost everything you said. IF you can afford a good preparer (a CPA/tax atty type vs a "Tax Doc in a box" type), that's great. And yes time is $$...hence my comment that it's up to the individual as to whether it worth's their time to push the questionable if they feel they are correct and can't disapprove it via publications etc.

Your comment, "IRS agents have numeric thresholds that need to be satisfied with investigative actions. " is however, not true. It is against the law now for that to happen punishable with removal from the service and possible jail time.

By the way, tax auditers do individual returns, small businesses agents do larger businesses, corporations. Can expect an agent to work cases that expect to clear at least 900/hr. The little guy usually isn't in that category and is handled via notice.

The buzz word for 'service centers" is now campuses. So they don't retire, they graduate.