Top 10 of 2011 – #10 – Signs Don’t Make Mileage Deductible

We are counting down the 10 most popular stories of the year at The Dinesen Tax Times! At #10 is a story published on December 9, 2011, as part of our weekly Q & A Fridays with Jason segment. The first question about mileage deductions is what drew people here, thanks to a link to the story from the Tax Update Blog (thanks, Joe Kristan!), but it also included interesting info about educator expenses and 529 plans. The story is reprinted in its entirety below:


Q & A Fridays — Car Expenses, Educator Expenses and 529 Plans (from 12/9/11)

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.