December 31 Deadline for 2015 Gains and Losses
33.16 Local Transportation and Travel Away From
EXAMPLES
1. Allemeier was originally hired as a sales representative by a manufacturer of orthodontic appliances. An outstanding employee, he quickly advanced in the company and was given greater responsibilities, including sales strategizing and conducting seminars. While he was encouraged in his decision to pursue an MBA, the corporation neither required such a degree for advancement nor reimbursed employees for the expense. Allemeier was promoted to several higher positions before obtaining the MBA. The Tax Court determined that Allemeier’s MBA did not lead to a new trade or business and therefore his tuition payments were deductible.
The MBA merely enhanced the skills he already used on the job, specifi cally, giving him a better understanding of fi nancials, cost analyses, marketing, and advertising.
His job requirements did not signifi cantly change after he obtained the MBA.
2. A practicing dentist returned to school full time to study orthodontics while continuing his practice on a part-time basis. When he fi nished his training, he limited his work to orthodontics. The IRS ruled he could deduct the cost of his studies. His post-graduate schooling improved his professional skills as a dentist.
It did not qualify him for a new profession.
3. A practicing psychiatrist may deduct the cost of attending an accredited psychoanalytic institute to qualify to practice psychoanalysis. A social worker has also been allowed a deduction for the cost of learning psychoanalysis. In one case, the Tax Court allowed a psychiatrist to deduct the cost of personal therapy sessions conducted through telephone conversations and tape cassettes. The court was convinced that the therapy improved his job skills by eliminating psychological blind spots that prevented him from understanding his patients’ problems.
4. A licensed practical nurse may not deduct the costs of a college program that qualifi es him or her as a “physician’s assistant,” which is a new business. Physicians’
assistants and practical nurses are subject to different registration and certifi cation requirements under state law, and, more importantly, the physician’s assistant may perform duties, such as physical examinations and minor surgery, which go beyond practical nursing duties.
5. Edward, a self-employed golf instructor without an undergraduate degree, earned an associate’s degree in business from the Golf Academy of the South. The IRS and Tax Court disallowed his deduction for tuition and fees. It does not matter that the courses may have improved his skills as a golf instructor. No deduction was allowed because completing the associate’s program was a fi rst step in acquiring a basic undergraduate degree that would qualify Edward for a variety of trades or businesses other than that of a golf instructor.
33.16 Local Transportation and Travel Away From Home To Take Courses
If your courses meet the requirements in the preceding two sections (33.14, 33.15), costs of local transportation and travel away from home may be included in the business/job expense deduction.
Local transportation expenses. If your courses qualify for a deduction under 33.15, you may deduct transportation costs of going from your job directly to school. Transportation costs include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. According to the IRS, the return trip from school to home is also deductible if you are regularly employed and going to school on a temporary basis. According to the IRS, you are going to school on a tem- porary basis if your courses are realistically expected to last for one year or less and actually do last no more than one year. Th is is the same one-year test for determining whether you can deduct the cost of commuting to a “temporary” work location (20.2) or living costs while away from home on a “temporary” assignment (20.9). Th e IRS position is illustrated in the following Examples.
Using your car. If you use your own car for transportation to school, you may deduct your actual expenses or use the standard business mileage rate to fi gure the deductible amount. Th e standard mileage rate for 2015 is 57.5 cents per mile. Whether you deduct the standard mileage rate or actual expenses, you may also deduct parking fees and tolls.
Caution
Are MBA Courses Deductible?
Th e cost of MBA courses is deductible if the courses enhance the skills required in your cur- rent position, are not a minimum job require- ment, and do not qualify you for a new business.
If an MBA degree is required to obtain a promo- tion to a new position, the MBA is a minimum job requirement and no deduction will be allowed. For a deduction, the courses must be related to your existing job responsibilities and not lead to qualifi cation for a new business. Th e Tax Court has allowed deductions for MBA ex- penses where individuals with some managerial or administrative experience took the courses to improve skills needed for their existing jobs.
In one case, a college graduate who took a summer job before starting MBA courses was not allowed a deduction because he had not yet established himself in a business or employment;
the summer position was just a temporary stage between schooling.
If your employer reimburses you for MBA courses that qualify for a deduction, the reim- bursement is a tax-free working condition fringe benefi t; (3.6).
Local Transportation and Travel Away From Home To Take Courses • 33.16 Travel and living expenses away from home. “ Away from home” has a special tax mean-
ing (20.6). You are not away from home unless you are away overnight. If you are away from home to attend a qualifying course, you may deduct the cost of travel to and from the site of the course, plus lodging and 50% of meals while you are there.
Expenses of sightseeing, social visiting, and entertaining while taking courses are not deductible.
If personal reasons are your main purpose in going to the vicinity of the school, such as to take a vacation, you may deduct only the cost of the courses and your living expenses while attending school. You may not deduct the rest of your travel costs.
To determine the purpose of your trip, an IRS agent will pay close attention to the amount of time devoted to personal activities relative to the time devoted to the courses.
EXAMPLES
1. You drive home from work, and two nights a week for one month you drive from home to attend a refresher course. The course is considered temporary. You may deduct the round-trip transportation costs between home and school. The deduc- tion is allowed regardless of how far you travel.
If you went directly from your job to the school, you may deduct transportation from work to school, and from school to home.
2. On six consecutive Saturdays, which are nonworkdays for you, you drive from home to attend a qualifying course. This is considered a temporary course. You are allowed a deduction for round-trip transportation between home and school, even though you are traveling on a nonworkday.
3. Assume that in Example 1, you took classes twice a week for 15 months instead of one month. The IRS does not consider the course to be temporary. You may deduct the cost of going directly from work to school, but the costs of going between home and school are nondeductible to the extent they exceed the cost of going to school directly from work.
Is travel itself a form of education? A teacher generally may not deduct the cost of an “edu- cational” trip to another state or country as a job expense. Although a trip may have educational value in that the teacher learns about people, culture, or places related to the courses that he or she teaches, the IRS position is that a specifi c statute, Code Section 274(m)(2), bars a deduction for travel that is a form of education. Th ere may be exceptions where specifi c research can only be accomplished at a particular location, but a trip for “general” educational purposes does not qualify according to the IRS.
Th e Tax Court took a diff erent view of the statute in a decision that opens the door to a deduction for teachers who travel overseas to take highly organized courses with regular lectures, a structured syllabus, tours to historically and culturally relevant sites, and extensive reading as- signments. Th e Court allowed a California high-school English teacher and department chair to deduct $5,334 for her airfare, lodging, meals, and tuition for an 18-day trip to Greece in 1995.
She was also allowed to deduct $7,705 for a two-week trip to Southeast Asia in 1996. In Greece, she took a course on Greek myths and legends and on the Asian trip, a course on Buddhist and Hindu traditions. Her school required neither course. For the Tax Court, the key to the deduc- tion was the organized nature of the courses, which were sponsored by the Berkeley extension program, taught by university professors, and qualifi ed for undergraduate credit, although the teacher was not taking the courses for credit. Th e regular lectures, tours, and readings were fo- cused educational activities, not the type of mere educational travel that Congress intended to make nondeductible. After holding that a deduction was not barred by Section 274(m)(2), the Court still had to fi nd that the courses had the primary purpose of maintaining or improving the teacher’s skills, but it had little diffi culty in doing so. Th e courses improved her teaching skills and helped her to develop curriculum. Th e courses on Asian traditions also helped her relate better to the predominantly Asian student population in her school. She spent most of her time attending courses and related programs and had minimal free time.
Chapter 34
Special Tax Rules for Senior Citizens and the Disabled
All of your Social Security benefi ts are tax free if your “provisional income,” explained in 34.3, is $25,000 or less if you are single, or $32,000 or less if you are married and fi le a joint return. No more than 50% of your benefi ts are subject to tax if you fi le a joint return and your provisional income is over
$32,000 but no more than $44,000, or if you are single and your provisional income is over $25,000 but no more than $34,000.
When provisional income exceeds $34,000 or $44,000 (depending on your filing status), more than 50%, but no more than 85%, of your benefi ts are subject to tax. If you are married and fi ling separately, and did not live apart for the whole year, you must apply the 85% rate without considering the base amounts. If you are married fi ling separately and you lived apart the entire year, are a head of household, or are a qualifying widow/widower, use the $25,000 and
$34,000 base amounts for single persons.
If you are receiving Social Security benefits but continue to earn wages or self-employed income, you must pay FICA taxes or self-employment tax on that income regardless of your age.
If you are on Medicare, be sure you understand the impact of adjusted gross income on your premiums (34.10).
If you are disabled, you may be receiving Social Security and other benefi ts. Th e tax rules for Social Security disability payments are the same as for Social Security retirement payments. Other government benefi ts may be tax free (34.11).
Th ose who become disabled at a young age may be able to have a special savings account, called an ABLE account, which does not prevent eligibility for government programs, such as Medicaid (34.12).
34.1 Senior Citizens Get Certain Filing Breaks 597
34.2 Social Security Benefi ts Subject to Tax 597
34.3 Computing Taxable Social Security Benefi ts 598
34.4 Election for Lump-Sum Social Security Benefi t Payment 600
34.5 Retiring on Social Security Benefi ts 600
34.6 How Tax on Social Security Reduces Your Earnings 601 34.7 Eligibility for the Credit for the Elderly or the Disabled 601 34.8 Figuring the Credit for the Elderly or Disabled 602 34.9 Tax Effects of Moving to a Continuing Care Facility 603 34.10 Medicare Part B and Part D Premiums for 2016 604
34.11 Special Tax Rules for the Disabled 604
34.12 ABLE Accounts 605
Social Security Benefi ts Subject to Tax • 34.2