Deductions in a Fifth Wheel

June,

My husband is an Union Electrician and I am a self-employed JAMMON (jack of many – master of none) who works from home with my S-Corp – run solely by myself with the occasional help from a consultant. Due to the lack of construction work in the Indianapolis area (the last 18 months) we recently sold EVERYTHING that we owned, purchased a fifth wheel and will travel the country following work that my husband can obtain with the IBEW (International Brotherhood of Electrical Workers). I will continue to work from the fifth wheel as all I need to operate is a computer and cell phone (I do bookkeeping, graphic design, data analysis, high level admin, etc).

We would like to maximize our write-offs and albeit we don’t have many expenses these days aside from a fifth wheel payment, campground fees, cell phone and internet – we want to maximize.

I will be writing off my cell phone and internet as well as other office supplies and operating expenses, but what about other expenses such as the fifth wheel payment and its maintenance costs? Campground fees?

Mileage for my husband from the fifth wheel to his job site and back? Me from the fifth wheel to my clients and back (provided I am in the same State as my client at the moment),

What about items purchased for the fifth wheel such as storage bins, baskets, lawn chairs, propane, etc?

Any advise you give for the travel employee / traveling small business owner would be greatly appreciated.

My husband has associated with many other traveling electricians who write EVERYTHING off, but our small town accountant isn’t on the same page.

J What can we do? Thanks!
Courtney


Dear Courtney,

Generally I don't advise corporations via my blog, however, since much of what you ask applies to a lot of indies I'll see what I can do here to help you out.

If you live out of your fifth wheel [trailer or camper hooked to your vehicle] you must allocate any deduction for its use the same way you would for any home office -- exclusive use on a regular basis. Read these posts home office or studio . All supplies for the running an maintenance of the fifth wheel would be governed by the home office rules.

Supplies exclusively for your business, such as storage bins, would be 100% deductible.

Since you move around all the time I would allow only mileage from one business location to another. That means if you can establish a home office in the fifth wheel then driving from it to a client would be business miles. Here's some auto expense posts expenses -- auto-transportation .

If you pretty much stay in once place and move only when a job comes up, read these posts for possible deductions temporary worksite .

Hope that helps. And don't write-off "EVERYTHING." That doesn't go over well with the guys at the IRS. And, if you know better they may look at it as fraud.

BTW -- I also hope that your small town accountant had a really good reason to have you complicate your life by forming an S-corp.

Happy Trails!
June

Meals Deductions: A Quick Overview.

June --

After 20+ years as an executive and employed consultant, I had an opportunity to go on my own last year as an independent. It was a successful year. I provide program management services in the technology implementation space.

I was on a temporary project assignment that has now concluded. I read the tips on your site on deductibility of meals using the IRS per diem meal allowance. As an independent and self-employed, if I use the per diem amount in lieu of actuals, is the per diem amount subject to the 50% limit. Example: per diem rate for 2008 Washington DC is $64. Do I use $64 or $32?

Please advise.

Thank you.
Jason
Bethel Park, PA


Jason --

Here's a quick overview.

Food and beverages offered to the general public are 100% deductible. That means if an artist has a gallery opening and invites the public or if an IT indie invites the community to his new office, then the food and drink is served at these events is a 100% deductible meals expense.

All other meals, whether calculated as actual amount paid or taken from the per diem table, are deducted at 50%.

If not traveling you may deduct meals only when you paid for yourself plus someone with whom you have a business connection and dined for a business reason.

When traveling you may deduct all meals and snacks for yourself; no business associate need be with you. Although all travel meals are deductible they, too, may be deducted at only 50%.

Hope that clears it up for you.

-- June

House Trailer or Motel

June --

Regarding travel related expenses: cost to operate and maintain a house trailer, would that also include the purchase price of a trailer to use instead of lodging while on a temporary work assignment, or would it have to be depreciated?

Laura
Fort Pierce, FL


Dear Laura,

Assuming you have established that the house trailer -- or part of the house trailer -- is a legitimate business expense then you must depreciate the cost. The procedure is similar to depreciating a home office.

-- June

Temporary Work Assignment

Brenda from Palatine, IL is an indie who provides organizational development and learning and instructional design consulting. She inquired: "Recently, I have picked up 2 clients in Virginia and DC that have provided me with 1-year contracts, which in essence has required me to stay in the area." "I want to be sure that while I am working for these clients in the area, that my lodging expenses are deductible. My permanent residence is in Illinois."

I have had many questions about the deduction of expenses related to what is known in tax jargon as “temporary assignment" or "temporary worksite.” For instance, if you regularly work at one place -- called your tax home -- and also work at another location, it may not be practical at the end of each work day to return to your tax home from this other location. You may need to "live" at this other location for a while. What is deductible? Here's a guide:

A job assignment may be temporary or indefinite. Which one it is makes a big difference in the amount of expenses you may deduct.

If your other work location qualifies as a temporary work site then you may deduct related travel expenses. And, as you can read here, travel expenses can mount up. A temporary work site or assignment is, generally, work at a single location that is realistically expected to last (and does in fact last) for one year or less.

If, on the other hand, your work assignment or job is indefinite, you cannot deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year, whether or not it actually lasts for more than one year.

You must determine whether your assignment is temporary or indefinite when you start work. If you realistically expect an assignment or job to last for one year or less, it is temporary.

An assignment that is initially temporary may become indefinite due to changed circumstances. A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment.

Be sure to check out the long list of travel expenses on my website.

Cruise Ship Entertainer Gets No Tax Breaks

Many months ago I received the email below from Charles, a cruise ship entertainer. Charles and I have exchanged email over these months. I had questions for him prompted by my many conversations and correspondence with the IRS. At times I waited weeks for a response from the advanced tax law section of the IRS.

Here's the situation:

Hi June,

I really appreciate your site and what it has to offer... Excellent, clear, understandable advice and information.

Here's my question in two parts: I work as a guest entertainer on cruise ships. I spend most of the year away with a few weeks at home.

I also hire dancers and technicians on the ship for my show and pay them in cash onboard. They are not US citizens and do not get a 1099 from me. I simply have a record of paying them. Do I need to send out 1099's? Is there another way I should do this? It adds up over the year to a considerable amount.

The second part is that if I'm spending 330 days outside the US on the ship, do I qualify for the foreign earned income exclusion? Or, if not, since I pay for meals, etc. is there a per diem amount I can use for those days out at sea or in port in other countries.

There's not a lot of info for us cruise ship workers, but I hope to learn more.

Best,
Charles

I also learned from Charles that the ship is registered in the Bahamas and he is paid by the cruise line. He visits up to 20 or more countries each year and is in US ports sometimes for a few hours. He's in international waters about 95% of the time.

When not on a ship he lives in Las Vegas, Nevada. He has a house there and a Nevada driver's license. Charles says that he does not consider Las Vegas his place of residence since he is never there. "I live on a boat but visit my house once in a while to dust," is what he tells people.

The ship provides accommodations, but Charles pays extra for meals and incidentals.

My findings ...
The good news is that Charles is doing it right regarding the independent performers he hires. His payments to them are business deductions and all he must do is keep a record of payment. No 1099 is required. This is because the work is being performed outside the US.

The bad news is that someone in Charles' working situation does not get a business travel deduction for meals and incidentals. The IRS gives a deduction for expenses incurred while away from home, such as the per diem for meals and incidentals, to alleviate the burden on someone whose business needs require him to maintain two homes. "Home" in this circumstance refers to the principal place of work, not the personal residence. The exception for this circumstance is when the work is "temporary."

And then there's even more bad news. A US citizen may exclude up to $82,400 income earned in a foreign country or countries if he is a bona fide resident of another country or countries. [Read more about foreign earned income here.]The cruise ship travels to many countries and through international waters. Charles resides on the ship. The Bahamanian ship is not considered a residence in the Bahamas. Charles is an itinerant and so gets no foreign earned income exclusion.

Minister's Travel Expenses

June --

I am an ordained, self-employed minister. I will be traveling out of town serving as a interim for a local church. I will be leaving my home and staying in a different town 110 miles away from Sunday to Thursday. Am I entitled to the per diem method for taxes and can I deduct the mileage?

Thanks for your help.
Ed from Knoxville, TN


Ed --

I assume you work from home and that this assignment is temporary. The costs of getting there and back [travel expenses] are deductible. You may also use the per diem for meals and incidentals [not lodging] . You may use only actual costs for lodging.

There is more info on travel expenses at this link.

-- June

Temp agencies & Indies

June,

My wife was offered a part-time position as secretary under a 1099 contract for a loan officer (mortgage broker). Wanting to maximize our tax opportunities, we purchased your book, (Self-Employed Tax Solutions). I read your section on "What determines Employee or Self-employed Status?..." Under the 'control versus independence" guidelines of the IRS, this is most like to be considered an 'employee' position and not 'self-employed'.

My question is, how do temporary staffing agencies conduct business under these guidelines? What makes the temporary staffing agency different then a self-employed person performing the same task?

Thanks, Chris from Pflugerville, TX

P.S. This book is the best. A must for anyone even thinking of starting their own business.


Thanks, Chris, for your generous comment about my book. Please tell all your indie friends!

The temporary staffing agency is not playing by the rules. They get away with it because no one reports them. Legitimate, well-known temp agencies pay the workers as employees of the temp agency. Note that the worker is not paid as an employee of the company where he or she is temporarily working.

If you want to set everybody straight, you can call your county or state department of labor.

Best,
June

PS on Monday 7/30.
I contacted Kelly Services , one of the oldest and largest temp agencies I know of. They confirmed by email that "The worker would be an employee of Kelly. They get paid by Kelly."

PS on Wednesday, 8/1.
AQUENT gave a similar response and said that if you have more questions on this kind of arrangement to contact an Aquent agent at 877-2-AQUENT.

Deducting an Attorney's Time

June --

As a self-employed attorney, ordinarily I would charge my travel time to a client, usually at my full billable rate, but sometimes at a reduced rate. I spent several months last year working at a temporary work location as an independent contractor responsible for reviewing my clients' contracts, and negotiating and drafting agreements. The temporary work location in central North Carolina was situated 61 miles from my tax home in southern Virginia, so I spent about 2.5 hours per day traveling to the worksite for which I was not separately compensated, and for which I could not bill to the client (per our consulting agreement, I was responsible for my own travel costs).

Can I claim the 2.5 hours per day of non-productive, otherwise billable, but unreimbursed (by the client) travel time as an ordinary and necessary business expense to offset my gross profits on Schedule C?

The common practice of law firms billing travel time, and the stock-in-trade of an attorney being his/her "time" as measured by billable hours, seems to suggest I can list my expended travel time (necessary in order to reach my distant worksite, and unproductive because i could not work for this or for other clients while driving) as an ordinary and necessary business expense for purposes of trimming my taxable net profit.

Chris

Hello Chris,

Good argument, but no. you cannot claim your time, no matter how valuable, as a business deduction.

The same reasoning applies to contributions of your time and or services to a charitable organization. For instance, were you to donate your services to a non-profit you would get no tax deduction. But, were you to bill me for services and then give to the charity as a donation whatever I paid you, then you'd be able to deduct it. Take a look at No deduction for donated work or services on my website for a little more info.

Best,
June