Unusual Employee Business Expense

[JohnH]

Well this is a bit unusual.  New client - taxpayer is a commercial airline pilot based in Baltimore and his wife is a retired flight attendant.  They live in Charlotte, he drives his car to the Charlotte airport and then flies as a passenger in the jump seat or cockpit on most any cooperating airline to Baltimore, where he then flies his regular route.  He also does the same thing in reverse.  He doesn't pay to fly to & from Baltimore - lots of airline employee are given this privilege and it isn't taxable.

 

Now the plot thickens.  Since she is a retired flight attendant, she and her family can fly on a space available basis anywhere they wish.  So sometimes he flies on her family pass rather than as a "ride-along" pilot, only because it's sometimes easier to do it that way (less paperwork, I think).  But beginning in 2013, her airline began sending out 1099-Misc with the value of free retiree trips listed in Box 3. I think this is in response to an IRS decision of some sort.   So she got a 2013 Form 1099-Misc showing about $9K for all family travel, but his trips to & from work in Baltimore were about $4k of that. 

 

There's no question the personal trips for all family members are Line 21 income.  But I'm trying to reason through whether he can deduct the $4K on Form 2106.  He is already over the 2% haircut due to union dues and other normal work-related expenses.  Anyone have an opinion on whether we can use the $4K as commuting expense in this odd situation? One day I think "yes", then the next day I think "no":

 

If so, my two choices would be to reduce the Line 21 entry to $5K with an attached note, and the other would be to leave the $9K on line 21 and list the $4K on form 2106.  I think the second alternative is best, IF the $4K can be deducted in the first place.

 

(And just for the record, he doesn't use her family pass any more for his trips to Baltimore. Lesson learned)

[Jack from Ohio]

You would have a very difficult time getting an auditor to allow that reduction. 

 

You said it yourself, "Lesson learned."

[Lion EA]

You used the right word:  Commuting.  Commuting is not a deductible employee expense.  His business home is Baltimore.  We taxpayers are not going to subsidize his decision to live in Charlotte.

[kcjenkins]

I wish I could say go with option 2, but I have to agree with Jack.  

[SaraEA]

Another thing that goes against this taxpayer is the IRS's refusal to allow deductions for things that could have been reimbursed (or in this case, not paid in the first place). If insurance will cover damage but you don't apply because you think your rates will go up, no deduction.  Or if your employer will reimburse mileage but you're too lazy to keep records, no deduction.  Or if you're self-employed and could be on your working spouse's health insurance but decide to keep your own, no SE health insurance deduction.  There's a pattern here.  So in addition to the fact that commuting expenses are never deductible, the IRS's refusal to allow deductions for things you didn't have to pay is another solid argument against even attempting to write this off.

[JohnH]

Nobody is being very sympathetic here. I'm not worried about getting paid to prepare the return, but I've got to tell you all that you're probably costing me a few "buddy passes" for future air travel. Are you feeling any guilt?

[MsTabbyKats]

If the 1099 is issued to her....he cannot take a deduction. It's not his income.

[JohnH]

Talk about running around in circles.

So I got back to his return today, and just for grins I decided to run the numbers taking the deduction for the $4K of travel, along with his other employee business expenses. I assumed he's going to ask what it "would have looked like" if he could take the deduction. I'd certainly ask that question if it were me.

Turns out I can tell him it makes NO DIFFERENCE.

What the 2106 giveth, the 6251 taketh away.

His taxes would be lower if we simply reduced the Line 21 entry, but I never seriously considered doing that from the outset. So maybe the buddy pass is still a possibility....

[Jack from Ohio]

"Did you deduct my work boots and union dues?"

Yes. Schedule A.

Rents a house, $0 charitable, $75K AGI, married with stay at home wife.

Charged for the Schedule A accordingly.

[Margaret CPA in OH]

The work boots and union dues around here are good deductions on 2106 for many folks, even at $75k, who work in Cincinnati but live outside the city. At a tax rate of 2.1%, those items on 2106 are deductible for Cincinnati tax so they get a small refund. I don't usually charge anything extra for this simple additional form, the client feels good to get back a few dollars and I have a happy client.

[Jack from Ohio]

Most of my/our clients that are not paying a big mortgage payment never cross the standard deduction, even with the Union Dues, work boots, the $300-$500 in charitable giving and the 5 bags of clothes given to Goodwill. Yet, they always ask where the deductions are. I include Schedule A and charge for it, even if the standard deduction applies.

Easier to say "Yes those items were deducted" than to explain standard deduction. They just want to get their deduction for those items.

Those that are smart enough to understand standard vs. itemized don't even give me those figures.

[JohnH]

My invoice lists "Schedule A (analysis)" as a boilerplate entry.

It's on every invoice, because I don't bill by schedule or line entry.

That entry means one of several things:

1) I analyzed everything you gave me, you didn't provide any Schedule A information, and I moved on. (no charge)

2) I looked at your Itemized Deduction figures, determined you didn't have enough to itemize, and moved on (no charge)

3) I added up all the medical receipts in your shoebox, plus your other deductions, determined you didn't have enough to itemize, and moved on (the time I spent is included in your bill)

4) I prepared a Schedule A and billed you accordingly.

For some clients who don't have enough to itemize, but whom I suspect will inquire, I nevertheless force-print a Schedule A for the client copy set and put a big "X" on it with a felt pin.

[kcjenkins]

And, of course, some states have very different rules for Std deductions [AR being one] so often they get the deduction on the state even if federal uses std.  

[michaelmars]

I don't see the harm of preparing it since unless very obvious, you need to compile the info anyway just to see if it applies.  Same as schedule B, I always print it for client and my copy so it is easy to see if all accounts were included.