In March, when my accountant informed me that the IRS allows me to deduct mileage when I travel to a student’s house to teach he also admonished me for traveling to Manhattan to teach.  His argument:  if you make, say, $4,000 a year in lessons and the IRS allows you to deduct $5,000 for mileage you may want to reconsider why you are doing this. 

A $5,000 deduction for mileage, even though you earned only $4,000? The math is correct.  Currently, the IRS allows 50 cents per mile.  A roundtrip to Manhattan is 250 miles, a $125 deduction according to the IRS.  While the gasoline+toll costs are “only” about $50 (that’s in the Lexus; I don’t dare take the Jimmy because of the poor gas mileage it gets), there are other, not so obvious, expenses – maintenance comes to mind, so this seemingly generous $125 per-trip-deduction is probably quite justified. 

While at first thought the idea of having such huge deductions and the resulting lower self-employment tax bill may seem intriguing – who wouldn’t want to pay less taxes? – , at second thought, and as Beth Gigante Klingenstein points out at every workshop, it’s not in your best interest to lower your self-employment income this way.  Taking the above calculation, earning $4,000 but having a $5,000 deduction (for travel alone, there’s more in addition to that) means that I spent $1,000 for the privilege to teach – or, if you want to look at it differently, that I lost $1,000.  Negative income. 

Of course not all of my earned income went directly toward travelling expenses, so it’s not really negative income, but let’s look at what those taxes are.

Self-employment tax is the Social Security (and Medicare) taxes.  Which means that by lowering my income through deductions (which results in a lower tax bill), as far as my retirement is concerned, even though I worked and earned money, I had practically no income this year which means that no money went toward my retirement.  As far as the Social Security Administration is concerned, I didn’t work this year.

Sobering.

Of course, one solution would be to not take that mileage/travelling deduction.  But the fact is that I do have expenses from travelling.  I do want to teach my students in Manhattan, but the expenses, all expenses – gas, deductions if I take them, time – do add up.