Q & A Fridays — Car Expenses, Educator Expenses and 529 Plans

Have a tax question burning in your mind? E-mail me at dinesentax@gmail.com.WARNING: I cannot provide specific tax advice to you by e-mail. If you e-mail a question, it will be published in a future Ask Jason segment with an answer that is general to your situation. I cannot personally reply with a specific answer. If you would like specific tax advice relating to your situation, please click the “How to Hire Jason” link at the top of the page.

DISCLAIMER: The answers to questions in this segment are intended to be general in nature and do NOT constitute tax advice. Please contact a tax advisor to discuss your unique situation.

Q: If I have a side business and I put a sign on my car advertising my business, can I deduct all of my mileage as a business expense?

A: No. Regardless of having a sign on your car, mileage is only deductible if you are driving somewhere for business purposes. Like with any other expense, there really is no way to magically turn personal mileage into deductible business mileage.

Q: How do educator expenses for teachers work?

A: K-12 teachers can take up to a $250 deduction for classroom expenses on the first page of the Form 1040. Any expenses beyond $250 are deductible as a miscellaneous itemized deduction.

What’s the difference? A deduction on the first page of the 1040 is deductible without any income restrictions and reduces Adjusted Gross Income (AGI). AGI is often used to determine limitations elsewhere on the tax return, so a first-page deduction is useful.

A miscellaneous itemized deduction can only be taken if the amount exceeds 2% of AGI, and then you have to have enough other itemized deductions in order to itemize. Otherwise you take the standard deduction.

Q: I am thinking about setting up a Section 529 plan for my kid’s college expenses. What are the tax consequences?

A: At the federal level, you don’t get to take a deduction for amounts put into a 529 plan, but withdrawals from the plan are tax-free if used for college expenses.

At the state level, many states do allow a deduction for amounts put into a 529 plan. For example, Iowa allows a deduction of $2,865 per parent, per child, per year. So if you are married and contributing to a 529 plan for one child, you can deduct up to $5,730 ($2,865 x 2) on your Iowa tax return.

Have a Q for Jason? E-mail him at dinesentax@gmail.com and he’ll try to provide an A. Don’t worry, if your question gets chosen for use in this segment, your name will not be printed.