Welcome to the TravelTax Blog

While you may have read my articles on various websites, or my posts on FB pages and other forums, from time to time I like to wax eloquent without fitting my thoughts into someone else’s prescripted format. Some of the entries may be long and a few will simply be rants. Whatever the case, you are guaranteed to find some nugget of tax knowledge fitting for your situation with a dash of sarcasm or philosophy.

Since our clients are primarily engaged in multistate assignments, cross border employment or posted abroad, they share a common connection of working on the road, exploring the world or just planting themselves in a foreign land ….. travelers and nomads at heart.

Be sure to visit our website http://www.traveltax.com

Thanks for reading!

Impressions of the Tax Reform Bill (1)

The tax reform bill (linked below) was released this week and it is really a zinger. An effort to simplify taxes for the average person is truly evident but it comes at a cost for many families and creates a number of incentives for cheating the system.

The bill eliminates nearly every foundational tax principal and expectation that our nation has operated under for decades. Gone are medical deductions (grandma’s nursing home / assisted living costs), state / local income tax deductions (a double tax event), student loan interest (school is bad for you), employment expenses (stick it to the unions and those working two jobs), casualty losses (the hurricanes, floods, earthquakes and tornadoes are your fault existing and your human privilege), adoption credits (leave the kids in other countries in a rotting orphanage while we place every barrier possible to adopt one domestically), personal exemptions (God forbid you have more kids – lets be like China and only have one!). After the carnage there is only one narrow education credit (did I say that school is bad for you?), a much deflated mortgage interest benefit (lets all be renters and not give a hoot when we tear the place up),  a limited real estate tax deduction (let’s really tear the place up) and a severely shrunk charitable deduction (giving to the United Way or your church is heresy!).

Yes there is a bigger standard deduction but that is more of a dose of short acting Versed to mask the destruction. When you wake up, you will feel the pain……

My largest concern is the elimination of the employee business expense. Most of my clients live by this as their staffing agencies don’t pay for all their expenses for licenses, education, travel and meals etc.. That 2000 mile drive to work that 13 week assignment at a critically low staffed hospital under the proposed law is NOT deductible and good luck prying the reimbursement out of your agency.  Seasonal assignments in the southern states to care for the snowbirds are going to suffer – now you cannot deducted the housing costs. This will also encourage some less than desirable agencies to REALLY drop the taxable rate – once a traveler realizes that their professional memberships, licenses, uniforms and seminars are NOT deductible, they will begin to demand reimbursements. Then we can really have a Social Security funding problem once more people get tax free monies to cover all these employment expenses.

Working as a contractor is now more appealing since its the ONLY way to write off business expenses. Talk about the workers classification issues to follow.

I have one solution- make employee business expenses an above the line deduction with the same 2% of AGI (or some sort of MAGI calculation) threshold that they have always had. Or even a 25% of AGI threshold is fine. That way there is no disparate treatment of employees vs contractors for the same expenses.

I realize that this is just the first salvo and the bill may meet the same fate that the Obamacare repeal did OR look like something completely different when finally passed. For now, I’m a bit bewildered at a Republican Congress that is scraping the system for the sake of scrapping the system. We may wipe the table clean, but the next administration will begin putting plates back on the table because the table is so empty and inviting!

Tax Reform Bill

 

When it Comes to Duplicated Expenses, its All About the Home / Dwelling

A lot of Travelers mistakenly think that paying rent is a magic carpet ride to a tax home. This is not the case. You must be maintaining a dwelling that you use for your own lodging. Paying rent and maintaining a home you pay rent for are different things. That means the following types of arrangements that some speak of do not rise to the level of a “maintaining a dwelling”:

  1. I give Mom some money
  2. I help out with expenses
  3. I pay a utility bill
  4. I help out when at home
  5. I help my aunt out by sending her money
  6. I pay for a storage unit
  7. A combination of the above

When its an arrangement with a related party, the entire package needs to look, smell and taste like a real rental OR an equitable sharing of expenses.

The court case linked below distinguishes #5 above from a real rental or maintenance of a home. As the discussion states, “[t]he reason for allowing deductions for expenses while away from home {and / or allow tax free reimbursements (per diems) is to mitigate the burden placed on taxpayers who, for business reasons, must maintain two places of abode

In the case the taxpayer tried to use her benevolance payments to an aunt as proof of duplicated expenses.

Valdez v Commissioner

Trips Home During Assignments or Between Extensions

We are often asked about whether trips home are deductible during assignments or between extensions.

A trip home during an assignment is considered a personal expense by the IRS unless there is a business purpose for the journey. If one is returning home for work then most all of the trip is deductible, but if the return home is for personal reasons, then the deductions are limited to what would be deducted if the traveler stayed at the assignment area. For example, if one has an apartment at the assignment area, the lodging costs do not change however, the employee cannot deduct meal allowances when at home. The meal allowances are the only part that could have been deductible had the traveler stayed. If the meal allowance was $50/day and the employee when home for 4 days then $200 of transportation expenses for the journey home would be allowed

For reference, read the next to last paragraph of this ruling

Revenue Ruling 54-497 on Trips Home

The Oregon trail leads to a cliff –

Two recent tax related cases were decided and happened to be printed on the same newswire. One a Federal case that was on appeal and the other an Oregon state case. Both involved taxpayers claiming expenses for the use of an RV for business related activity while on the road. The Federal case made the IRS happy, the Oregon case …… well …… the OR state attorneys missed the boat or forgot to ask the IRS.

A little background is necessary before appreciating this.

First, the IRS, following tax court precedent, does not allow a taxpayer to depreciate an RV when it is also used as a residence more than 14 days. This is well established due to that fact that an RV is very difficult to partition into a home office deduction that requires exclusive use of an area of a residence for business.

Second, Oregon tax code specifically mirrors Federal tax law except where the Oregon legislature has decided to deviate. Outside of these exceptions, what the IRS does, Oregon does as well – or is supposed to.

Enter the two cases which are provided for your reading. The Federal case was decided right along the lines of the previous Federal cases addressing RV usage – in fact this one was an appeal that was upheld. Nothing grand there. However, the Oregon case went down the wrong trail. The attorney for the taxpayer in the Oregon case argued that the RV was deductible since it was a condition of employment for the taxpayer to maintain his own lodging at various jobsites. The Oregon attorney handling the case sort of took the bait and argued against the condition of employment and did not even mention (or was not aware) the Federal precedent. Well, if procuring lodging near a worksite is a condition of employment and you buy an RV to satisfy that, based on that condition alone, you have a major depreciation deduction. That is where the Internal Revenue Code adds another hurdle preventing one from deducting depreciation for a structure that passes the test of a dwelling, owned by the taxpayer, if they use it for more than 14 days, unless they can carve out exclusive business use of the dwelling from the personal use area.  Can’t do that in an RV.

The Oregon attorney didn’t even mention the Federal case, not attempted to argue the code section that supported it. Even the judge didn’t think about Federal precedent, but happily set a precedent for Oregon RV owners that want to use RVs for their lodging at worksites.

I called the attorney’s office in Oregon and they said they would probably issue a “non-acquiescence” which means they just don’t agree with the court. The case is allowed an appeal so we will wait to see. I have even provided another Federal case that decided the same 🙂

Federal Case from 2014

Oregon Case

Federal Case in Appeals