EZPerDiem Crib Notes
What does EZPerDiem do?
To understand EZPerDiem, you must have a basic understanding of what tax deductions flight crewmembers are entitled to. Essentially if a pilot or flight attendant itemizes their tax return, they can also write off work-related expenses. Work-related expenses might include items such as union dues, van driver tips, part of you internet, and meals.
The reason that EZPerDiem has become a necessity for so many people is that these tax deductions are difficult to calculate manually. Specifically, the meal expenses are extremely cumbersome without a service like EZPerDiem to help. The reason is that meals are not deducted by keeping receipts and adding them up. Rather, meals are calculated by using the federal per diem rates for locations where overnights happened. This is a good thing because the federal per diem rates are typically much higher than the amount you actually spend on your trips.
Think of it this way. If you had a layover in Las Vegas and lived off of McDonald's while there, and you only spent $10, you would actually be able to use Las Vegas's per diem rate which is upwards of $60 to use in your taxes. In other words, it does not matter what you actually spend on meals. It just matters where and when you had layovers.
Assume for a second that EZPerDiem does not exist. You want these deductions for meals, so you go about trying to get them by yourself. You would have to look up the per diem rate for every layover you had, then make sure it matches the applicable date. Next you would have to calculate the entire year according to the rules in IRS Publication 463. Then you would have to repeat this calculation using the special rules for transportation workers to see which is higher. Then you would take the highest of those two numbers and combine it with your other work expenses on IRS Form 2106.
EZPerDiem does all of that work for you, saving you hours of frustration and greatly increasing the accuracy of your tax return. You simply enter your layovers when they happened, and the rest of the process is automatically done for you. EZPerDiem has 12,500+ airport codes in its database that are linked to the appropriate federal per diem rate. That means you can simply enter the layover codes, and get detailed, audit-proof results for your taxes.
The first thing to note about EZPerDiem when you finish the setup process, is the layout. Pay attention to the top menu. There are 4 buttons on the top menu. These are labeled:
You will begin with #1 (The Layover Entry Page). When you finish that page, you will move to #2 (The Expense Processor). Next, you can view your Final Tax Report when #1 and #2 are completed and accurate.
The last menu button (#4 View Substantiated Expenses) is optional in EZPerDiem, but recommended.
How you should use EZPerDiem
If we were going to list step-by-step the basic tasks you should complete in EZPerDiem, it would be:
While there is a lot of power behind EZPerDiem, those four basic tasks will apply to all users of EZPerDiem.
After properly setting up domiciles for a given tax year, every user of EZPerDiem should enter their layovers in the Layover Entry Page. Next they should enter their tax deductible work-related expenses in the Expense Processor. Then when they pay, they can view their tax information on the Final Tax Report.
How to understand flight crew tax deductions
To determine if a given flight crew work expense is tax deductible, you should apply four tests. These four tests are as follows:
Test 1 - The expense must be ordinary. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. Examples of ordinary expenses for pilots and flight attendants include items like calculators, a water bottle holder, an id holder, uniform expenses, etc.
Test 2 - The expense must be necessary. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary. If an expense passes the ordinary test, ask yourself is it necessary (i.e. helpful and appropriate for your business.) The four example expenses listed above are all helpful and appropriate, and they therefore pass the necessary test.
Test 3 - The expense must not be personal. A personal expense is one that you would likely have incurred even if you were not employed. If an expense would only have been incurred because of the job, it then passes the ordinary test. Examples that crewmembers often try to deduct, but fail the ordinary test are socks, underwear, haircuts, and wristwatches. None of these items can be deducted. Obviously they all pass the ordinary and necessary tests, but they all fail the personal test. You would incur the expense even if you weren’t employed. Wristwatches are specifically listed in the tax code as a non deductible item.
Test 4 - The expense must not be prohibited by the tax code. Sometimes an employee business expense can pass all three of the tests above, yet still not be deductible. Take a wristwatch for example. A wristwatch can certainly be argued to be ordinary and necessary for airline pilot tax or flight attendant tax purposes. Furthermore, a pilot or flight attendant could argue that a wristwatch is not personal because they only bought it because of their airline employment. But unfortunately for all of the airline pilots and flight attendants with expensive wristwatches, IRS Publication 529 of the tax code specifically says that wristwatches cannot be deducted for any reason.
The Final Tax Report
When you finish entering all of your overnights in the Layer Entry Page and expenses into the Expense Processor, you can go to the Final Tax Report. This page will not be accessible unless you are a full member. The Final Tax Report lists in detail the information you need for you flight crew taxes. It shows how the calculations were performed and summarizes the expenses from the Expense Processor. Furthermore, it shows where your entries should go on IRS Form 2106.
The Final Tax Report offers a printer-friendly version that you can use for your tax records.
On the Final Tax Report there is a place for you to enter your non-taxable per diem that you received from your employer. This is important to enter because it goes directly on IRS Form 2106.
View Substantiated Expenses
This allows you to review expenses that you incurred and actually substantiated. Substantiating is optional in EZPerDiem, but it is required by the IRS. This means that even if you do not use EZPerDiem record details of your expenses, you should do it somewhere to protect yourself if you are ever audited. Substantiating is simply the IRS's way of recording details of an expense that you are deducting.
You can sort the substantiated expenses on EZPerDiem and print them, too. If properly done, this creates a great record for your flight crew related tax deductions.
Tools & Settings
This is where you can things like:
What a great site! This was the first year I decided to add the per diem to the tax write offs.....What was I thinking? I just wanted to let you know that your site worked great!
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