Job Expense

[Bjorn]

Facts:
Pilot lives and works in Wisconsin. His employer has moved his base to Philadelpia. He cannot move to Philly until May of 2006 due to a child in high school.

Can he deduct the cost of a hotel in that area? The cost is about $4800.00 per year.

Thanks

[jainen]

Lodging

$13 bucks a day -- what's he doing, staying at the Y?

Lodging is deductible only for a temporary assignment. Sorry, our family-values doesn't allow for actual kids. Philly has good schools too, you know. I think that's what they mean by "No Child Left Behind."

[Bees Knees]

The tax home for a pilot is generally the base where they fly out of. So if the tax home is Philly, there is no travel expenses for staying in Philly. The only exception would be if the Philly assignment was temporary, one year or less.

[JON]

Northwest Airlines-pilots

Pilots had used Florida and Texas as their residences, although they were going out of Minneapolis. I think three were criminally prosecuted and the number that redid their returns after that was large... IRS won becuase of the court prosecution....

One of the FLA so called residence was a post office box only. I hope that pilot prepared his own return.

[RLymanC]

Pilot Expenses

Consider Philly his tax home.

If the pilot lays over in another town, the company generally picks up the hotel bill. If no meal allowance is paid pilot can use DOT per diem rate for each night away. Amount subject to lenght of time away from Philly. This would be true even if he ends up sleeping at home for the night if his flight terminated in his home town.

Should his Philly domicile changes in less than a year I would consider amending a previous years tax return to include expenses incurred in Philly.

It matters not where a pilot lives, his tax home is where he is domiciled. When on company duty all unreimbursed qualified travel expenses are deductable when away from his tax home.

[Unregistered]

tax home

Must major Airlines pilot have a Tax Home for federal income tax (this is were they are base) and a state of residence (this is were they live when not flying).
Must of the pilots I know are base in one state and live in another, what is important for the pilots to do is have payroll take tax out for there residence state and not where they are base. I know lots of pilots may just use a PO Box in a none tax state and not live there which I agree is wrong.

[JON]

Minnesota's Case

Minnesota's case was to prove criminal intent, because they have homes here. I think the state of the withholding is where you are based that is their tax home. If they file in the state where their house is they get a credit for taxes paid to other states there. OK now someone give us the real answer.... Northwest Airlines is trying to redo all the agreements so the pilots pay them to fly the planes. We have already decided we do not need mechanics, just a few retrained bus drivers can handle the maintenance.

[RLymanC]

Tax Home

Good point on State taxes. A lot od Southwest pilots live in Nevada, tax free state.

They go to work in Oakland or Sacramento, CA.

California say's that if there flight does not remain in state airspace no CA taxes due, it's not considered CA income. If they fly a shuttle run between CA cities all day, that income is consideres CA income and is taxable.

[Bees Knees]

Minnesota's case was to prove criminal intent, because they have homes here. I think the state of the withholding is where you are based that is their tax home. If they file in the state where their house is they get a credit for taxes paid to other states there. OK now someone give us the real answer....

Tax home applies for purposes of determining whether you can deduct travel expenses for business. Your place of residence determines what state you must file as a resident. Where you actually perform services as an employee determines whether a state can tax your income. All three of these could be different.

For example, a Minnesota resident is a pilot for Northwest and flies out of New York to Hawaii. While in Hawaii, he must stay overnight before making the return trip. He also performed some temporary work while in Hawaii as a flight instructor for Northwest training purposes.

Facts: (1) He is a Minnesota resident, and must pay Minnesota state tax on all of his income, minus a credit for nonresident state taxes paid to other states.

(2) His tax home is New York. No travel expenses allowed on the federal tax return for temporary housing while staying in New York for his next flight. I’m not sure what New York state law would do as to his earnings. Maybe nonresident income, in which case he would get a credit on his Minnesota resident return. (Maybe Nancy knows)

(3) His temporary living expenses in Hawaii are deductible travel expenses on the federal tax return because they are incurred while traveling away from his tax home in New York. Any income earned in Hawaii for his flight instructor services would be subject to nonresident Hawaii state income taxes, with a corresponding credit on his Minnesota return.

[JON]

Tax Home

Where is the multi state tax lady. TAX HOME to me means that is where you are taxed for STATE income tax purposes. It also may have does have affect on federal deductions, but you can select where your residence is-as long as you do your job your employer will not care, but TAX home for state income tax purposes to me means New York, maybe the City too, get their taxes and Minnesota gets to tax, but you get a credit for the New York taxes, with limits. Delta pilots had a big audit in the 90s by the state of Georgia-it was my impression they won-if your flying out of Atlanta Delta W/H state imcome taxes for Ga and they could take a tax credit if they were filing in any other state. They did not care where the decided to have their residence.

[jainen]

"tax home"

The term "tax home" has a specific meaning in the federal code. To the extent the state conforms to federal, it means the same specific thing. Your employer doesn't care what you call your tax home, but the taxing authorities do.

[Bees Knees]

Tax home for federal tax purposes does not determine residency status for state purposes. The Minnesota instructions for M1, page four says:

“If you considered Minnesota your permanent home in 2004, or for an indefinite period of time, you were a resident for 2004.”

It also goes on to say you are a resident if you are present in the state for 183 days and you have a place of residence in the state (either main or second or third home, etc.)

No mention of using your tax home to establish your permanent home. For Minnesota purposes, you are a resident if that is where you live, regardless of where you work.

For non-residency status, you only file and pay Minnesota tax if you have income from sources within the state. Again, no mention of tax home. It is not where you live or where your base is. It is where you earn your income.

The Northwest Pilots that were convicted of tax fraud tried to claim their residence was in Florida. It was not a case over where the income was earned, because if they were non-residents living in Florida but their tax home was Minnesota, they would still not owe any Minnesota tax because they didn’t earn their income in Minnesota. What got them in trouble was the residency issue, not the source of income issue. They claimed they were Florida residents, thus, no need to pay any tax to Minnesota.

[Jesse]

Minnesota Income

.... they were non-residents living in Florida but their tax home was Minnesota, they would still not owe any Minnesota tax because they didn’t earn their income in Minnesota. What got them in trouble was the residency issue, not the source of income issue. They claimed they were Florida residents, thus, no need to pay any tax to Minnesota.

Wouldn't it be considered Minnesota income, but they would get credit for taxes paid to other States, which would be Zero for Florida income, or if the states have reciprocity agreements such as MN and WI?

Wisconsin residents are tax on ALL sources of income with credit given for taxes paid to other states. I keep telling my family I want to move to TN!

[Bees Knees]

Wouldn't it be considered Minnesota income, but they would get credit for taxes paid to other States, which would be Zero for Florida income, or if the states have reciprocity agreements such as MN and WI?

No. Even though they were based out of Minneapolis/St. Paul, if they could claim Florida residency, no MN income tax due. Here is a press release from the MN Revenue Department for one of the pilots. It makes no mention that they would owe Minnesota tax for being based out of Minnesota. It only deals with the residency issue.

"For immediate release: January 27, 2004

Bayport pilot charged with felony tax evasion; ninth pilot charged


St. Paul, Minn. – Washington County charged airline pilot Dennis Dentley Dickinson, 41, with three felony counts of tax evasion, the Minnesota Department of Revenue announced today. Dickinson is the ninth pilot to face similar charges since March 2002. In each case, a pilot claimed residency in a state without income tax to avoid paying taxes in Minnesota. Northwest Airline records show Dickinson is based out of the Minneapolis/St. Paul airport, but that he claimed Florida as his home to his employer.

The department alleges that Dickinson failed to file Minnesota income tax returns for tax years 1999, 2000 and 2001. The department estimates that he owes the state more than $17,100 in income tax. Dickinson lives at 307 Lake St. S. in Bayport, Minn. and has been a Northwest Airlines pilot since 1985.

Minnesota law requires that residents of the state pay personal income tax if their income exceeds set minimums. In these years, the minimum requirement was $13,400 or less. Dickinson’s income during these years was as much as $183,900.

Revenue investigators found significant evidence that Dickinson lived in Minnesota:


He owns a home in Minnesota and lives there with his wife and their children.
His daily financial and personal business was conducted in Minnesota.
He is listed in the St. Paul phone book.
When Dickinson bought the home in June 1999, he claimed on property records that it would be his primary residence.
He has four vehicles and two watercraft registered and serviced in Minnesota.
Additionally, Dickinson is president of Dickinson Agency, a White Bear Lake insurance agency on White Bear Avenue. State records show the business as a Minnesota corporation and that Dickinson and his wife both hold Minnesota insurance licenses with their Bayport address.

Dickinson owns a condominium with his mother in St. Petersburg Beach, Fla., but investigators found little evidence to support Florida residency. He is not registered to vote in Florida, and there are no records of vehicles registered to him in Florida.

For each felony count of tax evasion, Dickinson faces a maximum sentence of five years in prison, a $10,000 fine, or both. Each of the eight pilots charged earlier were found guilty at trial or pleaded guilty."

[Gene V]

50% rule

Below is some information from Nicholas Romer, CPA,ATP book “State-of-Residence Tax Issues For Aircrews”

TAX HOME – Your tax home is where you earn most of your income. It is a federal income concept. It has nothing to do with your state of residence. The determination of your tax home affects federal tax issues such as commuting and living expenses.

Airline crews may use the state they live in for state tax purpose, they have to let the personnel department know where there home state is when they bit or are reassign a new base to fly out of. The state that they fly out of will not tax them,

Then there is the 50% rule for the other states. In 1979 the U.S. Congress passed the Aviation Safety and Noise Abatement Act together with an amendment stating effectively that no state can tax you for nonresident earnings unless you fly more than 50% of your time in that state. Stated another way, no state can tax you, except your resident state, unless you fly more than 50% of your logged flight time in that state.

The rule does not absolve you of state tax unless you were flying a line for most of the year. For example, if you sat reserve in Chicago all year and didn’t fly much, the 50% rule would not necessarily be your salvation. The state of Illinois would take the position that you were earning your salary sitting in an Illinois motel.

Remember, the 50% rule applies only to states where you are not a resident. Your resident state reserves the right to tax you no matter where you work.