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A shot in the arm for medical and travel expense by plane.

No enhancement in technical skills will he gained by the reading of this article; it is for entertainment only . . . does that mean the cost of this journal has to be pro-rated by line space and multiplied by 80% for this article?

The credit for the idea of this synopsis is due an uninformed client operating on the false premise that tax law is based upon logic. This unsuspecting victim of deductive reasoning stopped by to make inquiry about a medical deduction for travel. The question seemed simple enough on the surface: "If I flew to the Mayo Clinic do I get to deduct the plane ticket or do I only get to deduct 9 cents a mile? "

Clearly IRS has simplified things by saying the plane travel would be deductible, otherwise the mileage would clearly be debatable: would it be the route the plane would fly, the scenic route one might choose to drive or would you use geometry and find the shortest distance between two points? Also, it is interesting that it has not occurred to Congress to prorate the plane travel. i.e., Medical would be 9 cents/27 1/2 cents X plane ticket and travel for charity would be 12 cents/27 1/2 cents X plane ticket. The numerator mileage rate for medical and charity) would of course remain constant, though the denominator (the standard mileage rate) would increase yearly, as per current tax law.) Of course, it was with hesitation I interjected the example for fear someone from the law making body might potentially see it and inadvertently think it was a good idea thereby incorporating it into tax simplification.

The staggering inequity of the situation would not exit my mind. I made some preliminary applications and then I was forced to reduce it to a general algebraic formula defining the breakeven point. ( Indeed, I WAS FORCED as I would have been content to demonstrate my hypothesis with a few examples but I had the lack of foresight to bounce the idea off my brother, an economist, who insists on conversing only in mathematical sentences.)

The OUT OF POCKET costs are defined by the following equations:

Plane Travel (P + Fn) - (P t)

Car Travel (dma + Mn + Fn) - [(dmt + Mn) t]

P = Cost of plane ticket F = Cost of food n = Number of days t = Tax rate d = Distance ma = actual mileage rate wear & tear M = Motel mt = tax deductible mileage rate

The motel costs while receiving treatment are irrelevant since it would be the same in either case. Consequently the plane travel out of pocket cost is defined by the cost of the ticket plus food less the tax savings produced by the deductible portions of the trip. The out of pocket for car travel is the actual cost of operating your vehicle, plus motel and food enroute, less the tax savings produced by the deductible portions.

The only additional variable required for the breakeven formula is the number of miles one can travel in a day, which we will dub Z", resulting in the following:

d* = (P + M)(i-t) + F / M/Z(1-t) + F/Z + (ma + mt t)

If d > d* take plane

If d < d* take car

Substituting $365 for plane ticket cost, $50 for motel cost, 15% tax rate, $26 per day food cost, 300 miles per day travel, 9 cents per mile tax deduction, 27 cents per mile actual operating costs, we find the breakeven point to be 742 miles. That is to say at distances beyond 742 miles more money will be left in pocket by flying, and at distances less than 742 miles it would be better to drive.

Using a case I was personally famillarwith involving an 1800 mile roundtrip with the same substitutions is in the breakeven formula, the out of pocket costs reduce to $330 for air travel and $689 for travel by car. This nets a savings of $359 for air travel.

Clearly at greater distances and lower plane ticket costs, out of pocket expense becomes an item worth nothing. formula given does not take into consideration the cost of time lost; which would obviously be greater with road travel and proportional to your productivity at work. (In my case, productivity at work is an indeterminable variable.) Additionally, one cannot discount the consideration that in order to qualify for the medical expense deduction by exceeding 7 1/2% of AGI, one may clearly NOT even be in a breakeven situation in real life income and expense. ... but at least the deficit might be reduced.
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Article Details
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Title Annotation:Debits & Credits; tax deductions on plane travel expenses
Author:Hill, Roxanne
Publication:The National Public Accountant
Article Type:Column
Date:Jul 1, 1992
Previous Article:Compliance 2000.
Next Article:The IRS: today and tomorrow.

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