TED74

I'd love to learn from the successes and failures of so many before me when it comes to filing tax returns as an airline pilot. Anyone care to offer some worthwhile tips about just what is, could be, or isn't deductible...or if there might be some obscure credit newbies might not be aware of? What has or hasn't survived an IRS audit? Favorite techniques to keep organized throughout the year? Do you do your own taxes, or have you found it worthwhile to hand over a shoebox of receipts to some "professional" and cross your fingers?

Thanks in advance!

piper338

Pilots don't pay taxes.

Adlerdriver

Just one pilot's opinion - I recommend you get some more, if possible.

I did my own taxes for years using turbotax and that worked out fine. It’s a good product and very easy to use. All the information you need to track and deduct your airline related expenses is available on line and via the IRS website. If you don’t mind throwing a few bucks at a CPA, I think they can be a big help. Some people make a big deal about getting a CPA who is an “expert” in airline pilot tax returns. IMO, that may have been more of a factor years ago when there wasn’t so much information available on the internet. Now, in a few minutes you can have every related IRS publication open, some appropriate articles from the websites below and have just about all the info you need to file on your own. Any competent CPA is going to be able to do the same for you as well. A few years ago I began using a CPA and I’ve been very happy with her work. She is a bit more aggressive than I was and is saving me extra $$.

If you want a good result from a CPA, you still need to keep good records. I use Quicken to track all my expenses, not just those related to my airline job. I have an ALPA calendar that I use to track any cash expenses like tips. If at all possible, I pay for everything with a credit card. Sometimes that’s not possible with something like a coin laundry machine, so you need some kind of manual system until you can get home and enter it in the computer. It’s a lot easier to track expenses you paid for with a credit card, if that suits your situation. Obviously keeping a balance is a no-no, so if you’re not paying it off every month, then disregard. Dropping a box of receipts off is going to result in more work for you and your CPA. Save receipts you need, of course, but using some financial software to provide a detailed list of ANY possible expenses from the year is going to make the whole process easier and more efficient. Realistically, the deductible expenses I encounter on a routine basis while actually on a trip are tips to drivers and laundry. Most other deductible expenses are paid from home or at the time of purchase.

On the airline specific tax stuff:
My first piece of advice would be to make sure you calculate and deduct your per diem deficit. I used to do it myself but then evaluated the product supplied by ProDiem and they beat my calculations by a substantial amount. Definitely worth the ~$59 since their numbers result in at least that much more tax savings. http://pro-diem.com/
It used to take me several hours to go through all my trips for the year and calculate the numbers I needed. Now I just download their "widget". It accesses my company website and downloads the info they need. I'm done in 15 minutes, I send them the $$ and I have the data back in 24-48 hours. Very much worth it, IMO.

I can give you more detailed specifics on how to do the calculations if you want. Also, on that website, there is a section called CPA help. They have several options to download an expense tracker. The list of expenses will give you a pretty good idea of what should be tracked and deducted as periodic and regular job expenses.

There are also some good tax related articles available here. http://www.ezperdiem.com/flight-crew-tax-articles.html
I've never used their services but they do have some good info.

Here's a general overview of the per diem deduction:
You basically figure out how much per diem the government would have paid one of their employees if they had gone on your trips for the year. This is done using the government per diem rates published each year for locations worldwide.
(domestic)http://www.gsa.gov/portal/content/104877
(international) http://aoprals.state.gov/content.asp?content_id=184&menu_id=78

Once you have your total using the government rates for all your trips for the year, you subtract what you were actually paid in per diem by your employer. You are allowed to deduct 80% of that difference as a business expense. Normally this deduction is limited to 50%, but employees in the transportation industry are allowed to use 80%.

For many years, the conventional wisdom was that it was not worth doing this calculation and taking this deduction if you only flew domestic. That may be the case if you only fly to very small cities with low per diem rates and/or your employer pays you a lot in per diem. However, cities like LA, Chicago and NYC now have a per diem rate of $71 per day. Many other locations are at least in the $60s. Many airlines pay less than $50/day, so the difference between the two can add up quickly.

An example from my situation: As an international flyer, my annual total figured with the government rates is usually around $18,000. My company pays me between $9000 and $10,000. With a difference of about $9000, I take 80% of that and end up with a deduction of roughly $7,000.

A domestic flyer is going to see smaller numbers, for sure. However, even if you ended up with a $3000 deficit, that’s still going to be a ~$2400 deduction.

Of all my employee related expenses, the per diem related deduction is by far the largest. The rest typically involve things like batteries for my flashlight, uniform expenses, union dues, professional magazine subscriptions, sunglasses, bidding software, tips to van drivers, etc. There is a pretty comprehensive list on those links above. If certain expenses are listed as “incidental” expenses in the related IRS publication, you cannot track and deduct those expenses if you are using the per diem deduction mentioned above. The IRS considers that double-dipping. Things like tips to porters or a cab to a restaurant are considered incidental and are included in the per diem you are paid. However, tips to van drivers to and from the airport are not on that list, so you can track and deduct those outside the per diem calculation. Laundry expenses while on the road are also not on the incidental expense list so they are deductible as well.

One other area some pilots get themselves into trouble with is trying to deduct commuting expenses. Commuting is a personal choice and the IRS doesn’t consider the costs associated with it a deductible business expenses. So, no deduction for crash pad, travel to and from domicile, vehicle expenses, air fare, meals, etc.

Hope that helps.

ShyGuy

I use Airline Crew Taxes in Houston, TX. I too submitted them my per diem stuff but in the end they didn't use it, they said I was better off doing the standard deduction because in my case that got me the most money back. I never understood taxes (our tax system is far too complicated) but they got my taxes done and got me some decent money back.

Adlerdriver

If you're just taking the standard deduction and not itemizing, you really don't need someone else doing your taxes. That's about as simple as tax returns get.

paintyourjet

If you take the standard deduction, then you can just forget about all those expenses, and claim the earned income credit (1-3k). Of course this only applies to poor (regional) folk, no house, no nothing.

OnCenterline

Doing your own taxes as a pilot is not hard, especially once you've done it once or twice. I use TurboTax, which I'm convinced has some conservatism built in, and as the poster above noted, it's easy to use.

I keep track of my expenses through the year using an Excel spreadsheet. I start my taxes around Thanksgiving, when the software for the year is initially released. I'm done by the first week in January, and just waiting for the W-2's to show up. Filing electronically, I usually have my return in my account by the 10th of February.

That said, I'll add to the points noted earlier: per diem is a great way to recapture some money, but two things are worth noting. First, if you do an out-and-back, or a if a multi-day trip turns into an an out-and-back, that per diem is taxable. Second, if you are working for a carrier that pays more than the IRS CONUS rates, you won't be able to recapture anything. It's rare, but it does happen. Internationally, it's pretty easy to get some money back.

What's deductible: the litmus test is that the item you are trying to deduct must be required by the FAR's or your company Ops Manual(s). This is how you can legally claim deductions for hair cuts, dry cleaning, uniform/luggage purchases, your toiletry kit for the road etc. Tips are not required, but the IRS allows them. If you want to be aggressive, you can take a percentage of your computer and internet bills for bidding, online training, etc. The percentage is supposed to be realistic, so you need to come up with a number that will not draw the attention of the IRS. Cell phones are always a hot topic as to the legitimacy of the deduction, but most guys take at least something for it. The truth is, in a stare down with the IRS over the phone, you'll lose, but as long as you aren't audited, they'll turn a blind eye.

Commuting, as noted, is not in any way deductible, unless you overnight in your home town, in which case you can deduct the mileage for driving home, since you are technically on a business trip. This is such a small number that it's not worth the aggravation.

Pay-for-training is not deductible.

Renewing your CFI, flying GA for proficiency (if you have a commercial certificate for the category and class of aircraft flown), subscribing to industry publications, and union dues are all allowed. If you can make an argument that something is "professional development," you can probably deduct it. So, adding a new rating can work. If you're a female, you can deduct a reasonable amount for beauty supplies required by the company.

If you know that you are in need of a big purchase (say, a new rating, or an expensive headset), wait until the end of the calendar year, buy what you need, get your taxes done forthwith, and get your money back ASAP. One advantage to using TurboTax or similar software is that you can start early, and play with it to see how much you might save if you buy something and deduct it in the current year.

If a CPA can't save you more than you are paying them when compared to doing it yourself, you're better off just doing it yourself.

ShyGuy

I sent them in all my information and thought I would do an itemized deduction. I was renting, I had no mortgage. They came back and said after considering both options, I do better with standard deduction.

I wish I knew more about taxes, IMO, it's a critical thing they don't teach in high school. Every kid graduating at 18 should have a course on filing taxes and know how to do at least a standard one by themselves for federal and the state that they live in.

Adlerdriver

My kids took some kind of class on it - probably depends on the school. However, it would be pretty easy to get up to speed with a little research. One afternoon on the internet would probably be more beneficial than some class you took in high school. Combine that with using TurboTax and you'll be a pro in no time.

As far as itemizing or not: In most situations, if you don't own a house (with a mortgage), you probably won't benefit from itemizing (especially if you're married). Single standard deduction is $6200, married $12,400. If you can't come up with enough medical expenses, charitable deductions, business expenses and other deductible expenses to exceed those numbers, you have no reason to itemize.

TED74

Thanks for the helpful info! I had no idea about any of the per diem...exactly what I needed.