If you're a pilot with United Airlines, Southwest, American, or any of the other major carriers, I think it's time to say goodbye to the per diem deduction.
Hello, my name is Paul Carroll. I'm the CEO and founder of Efficient Wealth Management, a boutique wealth management firm based in South Texas.
The Tax Cut and Jobs Act eliminates itemizing for ordinary necessary business expenses paid by pilots. The per diem reimbursement that you receive from your airline is still not taxable. And that's great news. But unfortunately, effective January 1, 2018, pilots can no longer deduct the delta between the per diem reimbursement and the actual business travel expenses incurred.
Well, to put that in English, if you're an international pilot and you're getting $48 a day for per diem but the expense rate for Narita, for example, of Tokyo, Japan, is $100 — and I'm pulling these numbers out of thin air — that $52 difference you used to be able to deduct as an ordinary business, unreimbursed business expense, that deduction is gone. And for the international pilots, this is a big deal. Some of these pilots were deducting, some of YOU were deducting $40,000 a year if you were busy and you were hitting high-cost cities.
In addition to the loss of the per diem deduction, moving expenses are taking a double whammy. First, the reimbursement for moving expenses, that's paid by the airline, is now taxable income. The second big hit for pilots is moving expenses; the exclusion of moving expense reimbursement from income has been removed. If you're with one of the major carriers that reimburse you for a change in base during an upgrade or other scenario, that reimbursement now will be treated as taxable income.
For those who are not reimbursed, be it because it didn't fit the contract requirements or because you're working with an airline that doesn't reimburse at all, that expense used to be an ordinary/necessary deductible business expense. It is no longer a deductible expense. Those are two big hits for the pilots. Goodbye to the per diem, and hello to taxes on the reimbursement for moving.
What can you do about it? Well, tax management and tax location of ordinary investment income is even more important today than ever before. And if you'd like help from our stable of CPAs — we work with a number of CPAs who are uniquely experienced to work with airline pilots — please feel free to contact us at 281-528-1200. Or click on the website and you'll be able to reach us through email.
We wish you the best of investing success and success mitigating your income taxes. Thank you.
White, Dan. “Tax Reform: How It Affects Pilots’ Employee Fringe Benefits.” ALPA, 2018 Air Line Pilots Association, International, 2018, www.alpa.org/news-and-events/air-line-pilot-magazine/tax-reform.