You don’t live in a sticks and bricks home with a typical 9-5 lifestyle like many of us. You identify yourself as a digital nomad, wanderer, or an RVer. You have the freedom to roam and be in any state you want at any time. What does this mean for your business travel deductions? The answer is: it’s complicated.
Business travel deductions are allowed ONLY if they are ordinary and necessary and ONLY if you travel away from your tax home in connection with an existing business. And surprise, surprise! Your tax home is not always your personal residence. Tax home is a place where you maintain your place of work. According to the IRS: “Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.”
And what if you don’t work consistently in the same location? For people like you, the IRS provides directions, which help you determine if you actually have a tax home or not. If you don’t have a tax home, the IRS calls you a transient or an itinerant and denies business travel deductions. If you do have a tax home, your business travel deductions are allowed. Here are the IRS instructions to help you figure out your tax home situation:
- If you have more than one place from which you consistently work, you need to pick your main place of business among several ones that you use. The office where you spend the most time, do the most important things, and make the most money is your tax home.
- If you don’t have a main place place of business, then you need to go through the three factors below. Satisfying all three factors means that your personal residence is your tax home, and you are allowed to deduct travel expenses from your residence to another business location. Satisfying two means may have a tax home depending on facts and circumstances. Satisfying only one means you have no tax home, you are transient and can’t deduct business travel expenses.
Here are three factors:
- Taxpayer performs some work in the vicinity of their main home and uses that home for lodging.
- Taxpayer incurs duplicate living expenses while on business travel.
- Taxpayer has not abandoned their historical place of lodging and taxpayer has family members currently residing at this main residence or frequently visiting.
If you satisfy all three factors, then your tax home is where you live and you can deduct travel expenses that originated from your personal residence.
When you have both an RV and a regular house, you typically may deduct travel business expenses for your RV. This is because you meet all three factors. For example, you are a photographer who works from her apartment, who drives her RV to photoshoots, and always comes back to her apartment.
When all you have is your RV and no bricks and sticks home to return to, you satisfy only the first factor and the IRS considers you a transient. For example, you are a photographer, who lives in her RV and who drives around the country in search of beautiful photoshoots. In this case, your travel business expenses are nondeductible.
If all you have is an RV and no house, you may still deduct your travel expenses. For example, if you park your RV and buy an airplane ticket to go somewhere for business purposes. While on a business trip, you pay for a hotel. Here you satisfy the second factor by incurring duplicate living expenses when paying for the hotel. You are also satisfying factor #3 since you didn’t abandon your main home (RV) and intend to come back to it after traveling.
So, what exactly can you deduct under travel expenses?
You can deduct gas, repairs, campground fees, tolls. You could also take depreciation on your RV. But here you have to be careful. And it is better to go with regular MACRs and not to take 179 Section or Bonus depreciation? Why? You can read about it here
A couple of suggestions:
Your business travel deductions will be disallowed unless you keep good records of your travel expenses. Keep a travel log and track all of your travel expenses. In the case of the IRS audit, you will need to provide detailed records of your duplicated living expenses.
Beginning in 2018, employees are no longer eligible to deduct business travel expenses. No need to spend time on tracking expenses if can’t deduct them anyway. However, some states still allow employee travel business deductions on their returns. And you most definitely can deduct travel expenses if you are self-employed.
P.S. I've been getting a lot of inquiries from people outside of California. Unfortunately, I am a San Diego CPA and only serve California clients. But I hope that my blog gave you enough information to get started.