Lets talk deductions
 

It's that time of year again so lets talk about taxes. I've already heard several people in the crew rooms etc. making the huge mistake of saying "I'm just going to take the standardized deduction because I won't go over that amount". If you're flying 121 and aren't home based then this is already a false statement. I showed them some examples of what you can deduct and they soon realized how much you really can save. I'm not promoting something because I have anything to gain from it but you need to try Ez perdiem. It's very easy to use and takes only a short amount of time.

It's true you can't deduct per diem since you weren't taxed on it to start with however you can deduct the difference. IE: You get $30 of per diem from your company while you overnight in LGA but the government per diem rate for LGA is $64. Now you can deduct the difference.

So $34 you don't pay taxes on. The captain I was flying with on this last trip was one of the ones saying he'd just take the standard deduction. I told him he wasn't maximizing his money back so when we had a 3hr sit we went through some numbers. Within about 45 min we had all of his per diem figured out. He was around $7.5K in govt. per diem yet only received around $4k from the company. That was an instant $3.5k he is able to write off. So within 45min he just saved himself a little over $1k.

I'm no accountant so hopefully others can add to the list but there are other things many seem to overlook when doing their taxes.

1. If you've already paid tax on it once you don't have to pay taxes on it a second time.

--Keep every receipt of everything you buy. I shove them in the top of my suitcase. When I get home I put them in a box until its tax time. You can deduct ALL sales tax on items. Doesn't matter if it's $.50 on a 12 pack of sodas or $2k on a purchased car. Sure that receipt might only show $.25 of sales tax but it only takes a second to punch in the calculator and it does add up VERY fast.

2. Pull your credit card statements, student loans, mortgages, auto loans, etc.***Special conditions apply***

See:http://www.smartmoney.com/debt/advic...tory=debttaxes
How to deduct student loans:
http://www.irs.gov/taxtopics/tc456.html
Deducting Interest Expense:
http://www.irs.gov/taxtopics/tc505.html

Take the time to check and see if meet the criteria to take advantage of these valuable deductions.


3. Get all your bills. If you've already paid taxes, which you have, on your bills then make sure you deduct that amount.

--On my cingular bill I get $10.94 in government fees and taxes. That's $131.38 I deduct or roughly $45.98 I don't have to cough up in taxes. Now take a look at water, electric, gas, cable, etc.

4. Deduct what's required for your job.

--Haircuts, clothes, union dues, bags, headsets etc.

5. Depreciation of your vehicle.

--Take the time to go look at how many miles you have on your vehicle. Use TurboTax to plug these numbers in. It will take into account the vehicle type, age, and mileage.

6. Donated items

--Have an old junk computer laying around? Might be junk to you because its hard drive is small or doesn't have the performance to run the "latest and greatest" software but that doesn't mean it can't be used elsewhere. Most people just use a desktop for a few years then "upgrade" by purchasing a new one. Instead of letting an old PC collect dust take a little time to clean it up and take it to a non-profit group. My college desktop, which was 6yrs old, received a $300 deduction since I donated it to the Boys and Girls club. You can donate just about anything. Moving and don't want to lug everything around? You can take your old beds, dressers, TVs, chairs, couches, appliances, etc. to your local non-profit organization. I didn't want to have to rent a storage room so I took several items to a local non-profit group I had found, community service :o, that sells the items and uses the money to help animals. The amount I'll save in deductions will probably be higher than had I actually gone through the trouble of selling the items on my own.



That's all I have for now. I'm sure once I start running through my taxes I'll come across all sorts of additional things. I'd also like others to respond with any addons. I want to make sure I do everything I can.

Tax evasion is illegal, tax avoidance isn't :D Those loopholes exist for a reason.

Few questions I have for someone that might be an actual accountant. I've been looking around but haven't found anything yet.

--When hired by my new company, RAH, we were paid $400 per week during training. The $400 was tax free. Can I find the govt rate for Houston/Indy and deduct the difference?

--Prior to this year I was self employed. I was able to deduct the $.48 per mile(maybe it was $.52). Now since I'm working for RAH I can no longer act as a contractor and deduct my mileage. However, may I deduct the taxes on the fuel I purchase? The Oil companies are not the only ones making record amounts money. The US govt puts an average of $.47 of tax per gallon of gas. Since I obviously paid the tax pulling it out of the pump I figure the same rule applies as on sales tax; you don't have to pay tax on a tax. The government actually makes more on oil than the oil companies do. From 1977-2004 the major oil companies have posted $643 billion in profit. The US govt during that same time period made $1,343.1 billion :eek:

Good post! Lots of good ideas for us young people who have never made enough money to care about taxes until now.

Are you seriously saying that you deduct your haircuts and the interest on your car loan and credit cards?

I'm no accountant, but hmmmmm

Good luck on the audit, dude.

"Student loan interest is partially tax deductible on your tax return and personal interest, which includes interest paid on car loans, credit cards, and personal loans, is not tax deductible at all on your tax return."

From http://www.wwwebtax.com/deductions_i...deductions.htm

Be careful following tax advice from random dudes on internet forums.

I did some digging and you're right! I asked my accountant and was told I was able to because I had/have my own business and the truck I purchased was for that. I also have an Amex I use for all my business related purchases which is what I deducted any interest off. Thanks for speaking up. As I said I'm not an accountant so I'm sure there are holes. If anyone finds anymore let me know and I'll patch them up.

I should note that yes I do deduct haircuts, shoe shines, uniforms, etc. I'm required to look professional for my job and so these apply. It's part of the "2% haircut" ruling. You can deduct these amounts over a certain amount in the "Miscellaneous itemized deductions" column.

"A commercial airline pilot represented himself in Tax Court after the IRS disallowed a deduction for haircuts and shoe shines. He lost the point on the haircuts, but the Court ruled that shoe shines were part of the cost of keeping up a uniform, which is a deductible expense."

From Forbes.
http://www.forbes.com/2001/03/06/0306finance.html

Again, have fun with the audit.

Hey I'm required to get it I'm gonna do it. If I were to let my hair grow to my shoulders the company would make me get it cut. It's part of our written standards and is deductible. I have no problem putting it down, have for years, and if they audit me then I'll challenge it, and if I lose then I'll fork over the money. Till then it stays in my pockets earning interest. Just because some guy 7yrs ago couldn't make the case doesn't mean the court was right. Police officers, military, as well as several other professions where it's stated they must maintain grooming, or any other numerous ways it's worded, can deduct it. If I can get fired for not cutting it then it's deductable. I'll ask the IRS tomorrow to find where they draw the line.

Nice Wikipedia quote, but the 2% haircut ruling does NOT LITERALLY MEAN YOU CAN DEDUCT HAIRCUTS. Nor does the 50% haircut ruling. Read up on it. It has nothing to do with actual haircuts. Read your own quote above. It just has to do with levels of deductions. Why they named it that, I have no idea. I'm a pilot, not an accountant or a lawmaker.

I'm not trying to get into a p*ssing contest with you dude. Deduct whatever you want. I just don't want any other dudes getting into tax trouble off your advice, all over trying to save 20 bucks in taxes for the year. Sorry man.

Not getting audited.
T-Bone

Straight from the Justice Department
"According to the complaint, Moser falsely advises military customers that they can claim tax deductions for non-deductible personal expenses such as haircuts, cell-phone and Internet services, and other personal items and services."
From:http://www.usdoj.gov/opa/pr/2005/April/05_tax_191.htm

From the Army, where I'm nearly sure they REQUIRE you to get haircuts:
"If you itemize, you usually cannot deduct the expenses for...upkeep, such as haircuts"
From: http://www.usma.edu/PublicAffairs/PV/020118/MLaw.htm

From an accountant: "Several clients include the cost of suits, haircuts and shoe shines on their list of employee business expenses ("my boss requires me to wear a suit to work each day" or "if it weren't for my job I would let my hair grow"). Of course I totally ignore these items."
From: http://www.helium.com/tm/486978/thos...entshl-mencken

Duck, I would temper the enthusiasm a bit, although I know you sometimes find that difficult to do. Going to Tax Court is almost as painful as going to Superior Court. You’ll have to take time off from work and likely have to hire a tax attorney to help you. This is not traffic court.

You are not incorrect in many of your deductible items. Regarding deducting sales tax on gasoline, however, the IRS is clear that it is not deductible. Under the section of Taxes You Paid, it lists the following taxes as ones you cannot deduct: federal income and excise taxes; social security, Medicare, federal unemployment and railroad retirement taxes; customs duties; Federal estate and gift taxes; certain state and local taxes, including: tax on gasoline, car inspection fees, assessments for sidewalks, or other improvements to your property, tax you paid for someone else, and license fees (marriage, driver’s, dog, etc).

Regarding job related expenses, the IRS gives guidance as to what is deductible on Line 21 of Schedule A: safety equipment, small tools, and supplies needed for your job; uniforms required by your employer that are not suitable for ordinary wear; protective clothing required in your work such as hard hats, safety shoes and glasses; physical examinations required by your employer; dues to professional organizations and chambers of commerce; subscriptions to professional journals; fees to employment agencies and other costs to look for a new job in your present occupation, even if you not get a new job; certain business use of part of your home; and certain educational expenses. I would caution your haircut deduction.

For educational expenses, they can be listed on Form 1040, line 34 or go through the gyrations of the Hope Credit and /or Lifetime Learning Credit on Form 8863. Note that the Hope Credit is only for the first two years of schooling in an institution of higher learning. I doubt Johnny’s Flying Club to get your PPL falls under this criteria.

You yourself brought up the 2% rule. Depending on your AGI, it may or may not be difficult to overcome this rule. Everyone has to run the numbers themselves. Usually, what allows you to use the itemized deduction rather than the standard deduction is owning a home where you can deduct mortgage interest, points, and now mortgage insurance interest, as well as real estate taxes. Most of the other deductions are pretty much “chump change.”

Again, just so everyone knows – I am not a tax attorney, only an old legal aid lawyer who has gone to court (not tax court) with many members of the working poor who try to be a little too creative sometimes. Some things in life are worth doing, but many are not. Trying to game the system is one of the nots.

CPAs
 

Thanks Vagabond, great advice.

I have always paid CPAs to do my taxes, and they hardly charge more than tax preparers and they make you look good if you submit a tax return signed by them. You may think a CPA would charge too much to do household taxes but I never pay more than $100 for it. I have noticed a great difference in the exemptions they find; some get thousands back while others can't find a thing. I am never a repeat customer of the latter.

Here's a tip no one mentioned. If you have a similar spending pattern from year to year, get a CPA to do it one year and just emulate what he did on subsequent returns. Works pretty well unless your spending/income patterns change. One thing though if you do this, make sure to check if any applicable tax laws that your CPA used has changed. Just look through the instruction booklet that comes with your taxes. Disclaimer: as a random internet guy, guarantees not expressed or implied.:).

If you really want to save money you should not pay interest on any credit cards. Pay your bill in full every month no matter how painful. Per my CPA's advice I do not sometimes claim every "allowable" dollar or deduction on my tax return but I probably will not get audited. Believe the Country Lawyers advice you do not want to get audited it is not worth pressing your luck. The IRS makes the FAA look like girl scouts.

He's right about the difference you get for an overnight and the max the govt. allows without receipts. http://www.pro-diem.com/ is a great way to maximize this deduction.

T-Bone & Vagabond: Good words. I'd advise everyone to read and heed (including you TD).

FWIW: My good buddy in the ANG has a brother and dad that are IRS agents (investigate fraud, etc). I spoke with them re: my haircuts. My point was I had hair to the middle of my back in High School and would not have cut it but for the regulations of my employers (USAF, ANG, & now SWA). They grinned, nodded their heads, and said "nice try."

Sometimes there are big purchases that couldn't be paid off in one single payment. However I carry no balances on my personal cards. My farm purchases large quantities of chemical and other things at time that take a little time to get through. It's just part of the business. Not normal practice but it happens.

If I'm wrong on some things then I'm wrong. Like I said I'm not accountant and if it were as easy then everyone would be doing it. I've done my best to check on most items, however, some sources say yes while others say no. If there are other things inaccurate then lets have at it. I'd rather not fill in something completely wrong. I have my statements checked for flags though prior to shipping out and they didn't seem to find any last year.

Another Question. If I have stock in Company A and B. In company A I sell and make 10k. In B I sell and lose 10K. Do I owe anything? Do I pay on A and simply not pay on B or do they cancel each other out as a total investment outcome tax?

Also must I pay tax on dividends? If I received $3k in dividends but had them rolled over back into the stock do I still have the pay tax on the $3k?

Toilet Duck is UNINFORMED and DANGEROUS. Most of his advise is false, and other parts are misleading.

1. Per diem: The only shred of truth I saw. You can deduct the difference between the per diem received and the local per diem established by the government. However, this works both ways. If you receive $2/hr per diem and the government rate in Sioux Falls is $39/day, you must report the $9 difference as income if you want to be able to claim the deduction for nights spent in NYC. See also item #4 below.

2. Sales Tax: This will likely be a deduction only if you live in Florida, Texas, or another state that has no state income tax. When completing your Schedule A (Itemized deductions), you have to choose one or the other - not both. Also, the IRS gives you a table that gives you a sales tax amount based on the percentage tax and your income. You can add to that tax paid on cars, boats, etc. It is usually more generous than all those receipts with $.03 of tax.

3. Old computer deduction: You can tax a deduction when you donate used items, but it has to be reasonable. That means the price you can get on craigslist or e Bay - not some pie in the sky number that no one would pay.

4. Business expense deductions. First, your hair grows whether or not you have a job. Not deductible - even if you are in the military. Second, uniforms are deductible if required by your employer and NOT suitable for routine wear. Shoes, blue trousers, leather jacket...all suitable for routine wear and not deductible. Third, mileage. You cannot deduct any expenses related to commuting from your residence to your base. It makes no difference if you drive 3 miles or fly 3,000: commuting expenses are NOT deductible. If you have legit vehicle expenses (example: driving to your FAA required medical exam) you can claim actual expenses including interest - but only the percentage related to business travel. So, if you drove 10,000 miles during the year and 500 were business, you can take 5% of your interest expense. That's not much. Or, you can take the government rate ($.505 last year I believe) which is alot simpler. Fourth, the famous 2% rule. If you are married, these deductions have to exceed 2% of your COMBINED gross income to count for anything. Finally, if you itemize deductions you do not take the standard deduction, which was $5,500 last year for a single person and $10,000 for a married couple. You can take that much without even lifting a pencil. Unless you own your home and pay a ton in property taxes and interest, or give a huge amount to your house of worship you will probably save the money by just taking the standard deduction.

Those who say "I'm not an accountant" should not offer accounting advise!!!!

Oh, by the way. I was an accountant for twelve years, hold a Masters in Business Administration - and prepared tax returns for a "major national tax preparation firm" as recently as last year. PM if you have specific questions.

To go along with that, never seek financial advice from a pilot, especially from an anonymous internet message board.

Btw, I'm not an accountant, but I did stay in a Holiday Inn Express.

There is one way that you can deduct your commuting expenses. First you have to realize that your residence and your "Tax Home" are two separate things to the IRS. Your Tax Home is generally the place you earn the most $$$. Commuting to/from your tax Home is generally not deductible.....but, nothing in the IRS would preclude you from having another job at your residence.....and commuting from your Tax Home for business reasons is a deductible expense.

At your Tax Home, you can't deduct any of the routine expenses you have there (crashpad rent as an example).....but, if you have 2 jobs, you can deduct the portion of your living expenses at your residence because you are away from your Tax Home for business reasons.

FWIW---my Uncle was a long time, Sr IRS guy. And his advice to me for any questionable deduction, was to take the deduction, just don't spend the $$ because it might get kicked back. And the fun thing with the IRS and tax law's, is that there are a bunch of gray areas, and depending upon which agent/region you are dealing with.....well, you might get different answers.

As to haircuts, if you deduct every haircut you are asking for trouble, if you are getting haircuts every 2-3 weeks to look "professional", and deducting half of them, might float w/ a flexible auditor. but it might not.

as to uniforms, no definition out there on what is not suitable for everyday wear, to me, wearing my blue uniform pants and white shirt is not suitable for every day wear. And I am going to deduct the cost and upkeep of those items.

See-
http://www.irs.gov/pub/irs-pdf/p463.pdf
http://www.irs.gov/publications/p529/ar02.html

For other routine deductions suggestions see
http://www.pilot-tax.com/pilot-tax_organizer_main.htm

And don't get spelling ADVICE from an accountant.

Truer words have rarely been spoken.

And TD. Do some research on Airline Pilots going to jail for tax evasion. There is quite a history out there. The most recent I can recall is a few Northwest pilots claiming residence somewhere else and getting caught. This has always been a danger. If you live in California but fly out of Seattle you may be asking for trouble if you try to evade paying Ca taxes.

Well, I was going to try and answer Duck's stock sale and dividend questions, but I am not an accountant or a pilot (yet). So, Duck, if you haven't already gotten an answer, email me and I'll see what I can do. We are swamped this tax season, but I always have time for my APC friends.

TD-
capital gains and dividends
I only have 2 stocks, Company A & Company B.
I decide to sell, make 10k on one, lose 10k on the other. My losses offset my gains, so, no capital gains tax there....still have to declare and document it on my taxes.

But, Company A paid me 3k in dividends, which I will owe tax on

I think this is a great post Duck, being a pilot our lives are not as easily fit into the boxes that the IRS has. In any case

Caveat emptor

The opposite is somewhat true also. The CA Franchise Tax Board may try to collect from you if you are domiciled in CA and live elsewhere. In the end, you won't have to pay, but they sure will try their best to get their hands on your money.

California is VERY aggressive. I've heard something about calculating the actual time you spend in CA airspace but have never bothered to confirm it. I've heard if you spend over 50% of your flying time over CA you are liable for CA taxes but find it hard to fathom. Perhaps someone else wants to look it up.

Itemizing Dry Cleaning?
 

First, yes, I know this thread is ancient, but I've looked for way too long on the net and here on the forum, and still haven't found an answer.

Here's my question: If during the tax year I have actually been to/paid for 36 visits to the cleaners for dry cleaning uniform items but only have receipts for 20 of those visits, can I still deduct all 36 visits? Not sure about this whole "$75 or under" rule from the IRS. One source said that rule only applied to entertainment and meals and another source said it applied even for NON-entertainment and meal expenses if you have "some" of the receipts but you can show a clear pattern of spending (like paying a dry cleaning bill the day before a trip starts) and have some kind of supporting documents (like your company's list of all your trips in the last year), then that would suffice.

What say you? Any CPAs masquerading as pilots out there?

Thx in advance!

(PS - Yes, I know the easy fix is to make sure I save all such receipts. Didn't know dry cleaning was capable of being itemized until half way through last year.) :rolleyes:

Doesn't matter anymore because the tax reform got rid of the employee business expense deduction.

Crypto
 

How should I treat my losses in the crypto account this year?

https://btcmanager.com/gigawatt-bankruptcy-washington/

As a learning experience, hopefully.

I am going to start a mutual fund. My research will be combing pilot forums, surveys in crew rooms and input from individual pilots.

And then I am going to short the crap out of everything that pilots are investing in.

PISF. The Pilot Investment Short Fund. Coming soon to a brokerage near you.