Compound interest has been called the eighth wonder of the world. Incredible monetary growth is possible given two simple ingredients – persistence & time. And for airline crewmembers, perhaps one of the most overlooked opportunities to benefit from the power of compound interest comes during tax season.
Airline crewmembers (both pilots and flight attendants) incur a number of expenses associated with their employment. Most of these expenses are eligible to be written off as itemized deductions on IRS Form 2106 (Employee Business Expenses).
Think about some of the expenses you incur for your employment as an airline pilot. Most of the ordinary and necessary expenses you sustain are deductible. These may include items such as union dues, FAA medical expenses, some job searching expenses, type-ratings, uniform purchase and upkeep, meals while on trips, and a myriad of others. As long as you itemize, you are likely to benefit from these write-offs.
While documentation for some of these items is required, not all of these expenses require a receipt. Most “travel expenses” that are less than $75 can be written off without a receipt as long as you record the expense in a log or record that describes the date, location, amount, and reason for the expense. Travel expenses are the ones incurred while you are traveling for work. Meals on overnight trips do not require a receipt if you use the standard per diem methods described in Publication 463 or provided by per diem and expense calculation services like EZPERDIEM.COM.
But how does this possibly amount to more than $200,000? Don’t underestimate the power of compound interest. Consider the following. First, it is not unusual for flight crewmembers who properly deduct their employee business expenses to save hundreds or even thousands of dollars in tax money each year. Assuming an annual rate of return of 10%, a 3% inflationary adjustment on your tax savings, and a beginning savings of $1000 per year in would-be-wasted-tax-money, then over a thirty-year period, you would save approximately $214,602. See the following table:
Table 1 doesn’t assume taxes on your interest earnings, but if those extra tax refunds are placed into an IRA each year, it won’t be taxed until you withdraw it. If you put the extra refunds into a Roth IRA, that money will be taxed initially, but it will grow tax-free and won’t be taxed when you withdraw it at all.
It is important for anyone entering the airline profession to think about their taxes. Of course everyone should pay the taxes they rightfully owe, but the unfortunate reality is that most pilots and flight attendants pay more in taxes each year than they have to. A little time spent thinking about your airline-related-tax-write-offs today could add a serious boost to your retirement in the future.
Article provided by EZPERDIEM.COM
EZPERDIEM.COM is The Online Per Diem and Expense Calculator for Flight Crews,
An online service that significantly speeds up and helps pilots and flight attendants organize their airline-related-tax-expenses.