Often, a fulltime RVer will ask me about purchasing a brick and stick home just for the purpose of being able to claim the “away from home” expenses. The expenses that they want to deduct are the expenses they must incur because their seasonal jobs require them to travel, in their RV, to another location, that is at least 100+miles away. These expenses are the campsite rent, utilities, and meals while they are away from their brick/stick home. This does not include the transportation costs to get to the job site. Those are deductable in either case. In order to qualify for the away-from-home expenses, the taxpayer must have a home base that is either purchased or rented. It is these costs that must be duplicated. Not only must a home be maintained, but also the taxpayer must return periodically and must perform some of the same type of work while there. The additional costs associated with a home base are the real estate taxes, insurance, the rent or the capital invested in the house. The mortgage interest and the taxes are deductable items as Itemized Deductions on Sch A but only if you have sufficient such deductions that are more than the Standard Deduction: $12,200-14600 for married taxpayers or $6,100-7600 for singles taxpayers. Even if you have enough Itemized Deductions, the interest and taxes will only save you 15-25% of the costs. For each $1,000 of interest and taxes spent, you’ll save only $150-250 in taxes, depending upon your income level. The cost of insurance and maintenance of the house is not going to be deductable, and the away-from-home will only save you the same percentage and ratio.
However, if you want to keep a home base in order to tend to a seasonal garden; have a place to spread out your trophies, or works of art or other treasured heirlooms; or if you need a location to set up an immobile shop, then by all means set up or keep the home base and take full advantage of the away-from-home deductions you may then be entitled to. But do it because of these secondary needs, not just for the deduction of the away-from-home expenses. Remember, that a tax deduction will not save you in taxes near the amount of the expenditure to begin with.
After you have filed your tax return or have had someone prepare it for you, you are faced with the question of where to store your return. The statute of limits, the time period for which the IRS can come back and challenge deductions or differences in income on your return, can vary from 3 to 7 years and in some cases longer than that. If you have a home base, that you return periodically, it is a small problem to keep a file draw in a cabinet to store the returns along with the documents used to prepare the return. If you are a full time RVer, traveling with all of your things with you, finding a place to store all of that paperwork can be a “taxing undertaking” (pun intended) and it will get harder each passing year. More and more people are scanning their returns and saving them on their computer. This makes a backup to a USB flash drive, a CD or to an offsite or on the internet somewhere, most important. When you have your return prepared for you, many tax preparers will now furnish you with a digital copy of your return; no longer need to scan it. This is how I furnish the client copy to my clients. Those who have been getting it this way no longer care to receive a paper copy. This saves paper and postage. They no longer have to have their copy of the return first mailed to their mail forwarding service only to be forwarded on to them when they get to a postage receiving station. I email it to them encrypted and password protected. It’s safer that sitting in a mail box someplace.
Storing the return is an acceptable method to the IRS for storage of your return and for storage of your backup documents. You no longer need boxes of paperwork filling up space in the basement of your rig. Just be sure to backup your data in multiple place for safekeeping.
On my last post about planning for next year’s tax return, I talked about reviewing your 2013 return and adjusting your W-2 withholding or estimated tax payments. Today I will address organizing your records so that your information next year will be more accurate and easier to find.
One of the keys to preparing for tax preparation is being able to quickly find your information. This step is greatly simplified if you have one place to store your data. Start with an large accordion folder with labels on the divider for each category of repeating expenditures such as auto/truck expenses, supplies, campground fees, business use telephone, etc. One division can be used for single, annual expenditures such as the vehicle mileage log, the annual mortgage interest statement. These expenditures may be entered into a manual spreadsheet, or into a computerized spreadsheet such as Excel, or Open Office system before saving in the accordion folder. Timely kept records are more accurate and better substantiated in case you are ever audited.
If you do not have the self-discipline or the time to enter each item, investigate one of the scanning systems such as Neat. It is supposed scan your documents and sort them into defined lists. I have not used the scanner myself but I am told, by some clients, that it works well. The only problem that I have read about is that it uses proprietary software, meaning that no one else uses that system and the lists that it creates cannot be exported to a different software such as Quicken, QuickBooks or Excel.
If you use a personal financial program like Quicken, QuickBooks or one of the “free-ware” programs, you can prepare a record of your spending habits, as well as, devise a budget for comparison and a review of your spending habits. With such a report you can set spending goals and control your money. You can prevent it from slipping through the holes in your pocket for unintended, spur-of–the-moment items. I feel that if you must keep records for preparation of a tax return, let the records do double duty and help you monitor your finances as well.
Tips to Start Planning Next Year’s Tax Return
For most you, the tax deadline has passed. Starting now to take steps for next year can make your efforts much easier. My next six posts will be things you can do now to make next April 15 smoother.
First, review your 2013 return for the balance due or refund. Then review the withholding on the W-4 given to your employer. Try to make the taxes withheld from your pay closer to the taxes you’ll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. There is no point in receiving large refunds unless that is the only way you can make yourself set up a “savings account”.
If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator at IRS.gov to complete a new Form W-4, Employee’s Withholding Allowance Certificate. There is no penalty for failing to have enough withheld or for making estimated payments if your final balance due is less than $1,000. This is the target range that I encourage my clients to strive for, if they are fairly liquid in their assets. If they can easily come up with up to that amount they are money ahead. However if they don’t have a savings account and most every monthly dollar is spoken for, it is best to have extra withheld from your paycheck.
Start now to get organized and ready for next year. Planning for next year can now can save time, money and headaches in 2015 when you prepare to file your 2014 return.
Many time my clients will ask during their tax interview about deducting their auto or truck expense. When I ask if they have a log documenting the business use of the vehicle, most will say yes, and hand me a spreadsheet, a calendar, or some other record of their use of the vehicle. But I am still surprised at those who still show up without a clue as to what I am talking about. “Oh, I guess I use it about 90% of the time.” I sometimes turn and look over my shoulder at the ceiling. That’s where they are looking. They must keep some record up there.
For many years the IRS has required a auto log showing the business miles of a vehicle as well as any commuting, personal miles and the total miles for the year. While originally they required that the auto log be kept daily, they now accept a reconstructed auto log. The problem with a reconstructed log is it is prone to errors and omissions of some of the use. Although it takes some self-discipline, and resolve, once the habit is initiated, it will become a matter of routine. There are numerous computer programs that can help you to post your mileage on a daily basis. A spreadsheet may be utilized, or if you are old-school, as many of my clients are, a small calendar with the mileage written daily will work.
If you should find your self in a situation like the person above, trying to find your mileage on the ceiling of my office, you can always reconstruct using your invoices showing where you went and who you talked to or the stores that you shopped at. Use MapQuest or Google maps to look up the mileage from point to point, and write down in the logging system that you are going to be using for the coming year. You may miss some of the wandering around miles looking for a particular business. Yes, that wandering mileage, while wasted time, is still business time. If you can reconstruct 3-4 representative months that truly reflect the average months for the year, sometimes that may be annualized for a yearly log. It’s best to keep the log daily and if you want to deduct any of the vehicle you must have an auto log.
If you need help with suggestions for maintaining a contemporaneous auto log or ideas for reconstructing one please let me know.
My new book Can I Write Off My RV? is now published. In it I describe the difference in a domicile, a tax home and a home base; how and when to file multi-state tax returns and other areas important to the working RVer who wants to save taxes when filing their income tax returns.
A printed paperback copy of the book may be ordered by clicking http://www.createspace.com/4467541
An ebook version of the of the may be ordered by clicking here.
As a Workamper, will you be volunteering for some organization this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year. Here are five tax tips the IRS wants you to know about travel while serving a charity.
1. You must volunteer to work for a qualified non-profit organization. Ask the charity about its tax-exempt status. Visit the web site “IRS.gov” and use the Select Check tool to see if the group is qualified.
2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services, however.
3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip. The volunteer work must be the main purpose of the trip. Be sure to write that in to your travel/work log. You do keep one don’t you?
4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
5. Deductible travel expenses may include:
- Air, rail and bus transportation
- Car expenses
- Taxi fares or other transportation costs between the work site and your RV.
If you are not a full-timer, that is you have a home base for which you must duplicate your living expenses while you are “away-from-home”, you may also deduct:
- Lodging costs (if paid and not provided for you)
- The cost of meals
- And laundry and incidentals
If you have questions or want to discuss send me an email to george@RVTaxMaster.com or call me at 480-290-1310. I prefer an email. They’re easier to keep track of and gives me time to think of the response. I am happy to discuss short answer questions without charge. If we feel that the time and discussion will be indepth with a specific purpose in mind I will let you know if a billable situation might be necessary.
To learn more see Publication 526, Charitable Contributions. The booklet is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
This year is almost half over and it’s time to start organizing your tax records, if you haven’t started already. If you are a Workamper you have most likely finished your Winter job and have headed North and started your Summer job by now. You should have received your final pay statement showing your year-to-date earnings and any taxes that were withheld (if you were an employee). Hopefully you have kept all of the pay stubs so you can total them all up to insure that the employer’s totals are correct. You will also want to match these numbers up with your W-2 when you receive it at the end of the year. Employers sometimes make mistakes in totaling your wages and/or taxes withheld. Sometimes unscrupulous employers will increase your earnings to more than what you actually earned and received, just so that they may take a larger tax deduction and to lower their own taxes.
If you are a “part-timer”, have a home base somewhere, and are entitled to deduct your “away-from-home” expenses, summarize those now while they’re fresh on your mind. You can find a wallet type organizer at any office supply store or at Wal-Mart, Target, etc; to keep your receipts by category, not by month; or list them on a columnar tablet or in an MS-Excel spreadsheet.
Whether you have a home base or not (a full-timer) you may be able to deduct your travel expenses from one job to the next. There are a strict set of rules that the worker must follow to be allowed this deduction, but most Workampers can meet these requirements with a little planning and documentation.
Listen to the Workamper Tax Pro Secrets on the “workamper.com” web site under the bookstore section if you are not familiar with some of these terms. There I go into great depth about the home base requirements and what may be deducted. I also discuss what are “travel expenses”, “away-from-home” expenses and the requirements for deducting these costs.
Establish a single place now to start accumulating these items and records. Stay consistent in storing them there so that at the end of the year you won’t be so frantic is getting your information gathered for the preparation of your tax return. It’s going to happen, so try to make it as painless as possible by getting ready now.
Good luck and keep your wheels rolling.
The words home base refer to a brick and/or stick home that you must leave periodically for work or business purposes. It allows the worker to deduct all of his duplicated expenses while he is “a way from home”. The term home base should not be confused with the term domicile, which is your state of residence. Nor should it be confused with the term tax home. Tax home is a term used by the Internal Revenue Service to indicate where your income is earned. It may be in your home town or state (domicile) or at your home base, but could be in another state if no work is performed at your home base or within your domicile state. If you need to travel to another state or location in the course of your work you may deduct not only the travel expenses to get there and back but also the housing and living costs that are duplicated while you are there: rent (campground fees, housing (pro-rated cost of your RV), utilities (elect., water and all hookups and propane), and vicinity travel while you are on the job. Sometimes even food and laundry may be deducted.
Some RVer’s have asked me about renting out their home base while they are out on the road. What effect does this have on their deductions? If the home is rented, then it is no longer considered a residence but rental property. The rental income and expenses are reported on Sch E Rental Activity. Since your housing and living expenses are now no longer being duplicated but being paid for by the tenant , they are no longer deductible as “away from home” work related expenses.
Which is best: deducting the “away from home” expenses or renting the house out? That is a very complex question and requires a lot of analysis as to other items on your Sch A Itemized Deductions. It also requires consideration of your long term desires for the house (eventual sale and subsequent capital gain / loss), care and condition of the house while you are away, and your skills as an absentee landlord.
If you have a home base and are thinking about renting it out, talk with your tax advisor about the consequences before you decide to make this move. Should you like to be a client of mine, you may send me an email requesting a consultation via phone. If you have ordered the DVD set Workamper Tax Pro Secrets from Workamper News’s web site, you are entitled to a 50% discount off of the hourly rate.
Email me at george@BusinessAndTaxPlanning.com.
Are you an independent contractor or an employee? Many of the Workamper or other seasonal positions are structured for employees. There are some for contractors, though. What is the difference?…. A great deal when it comes to tax time. For an employee, the employer sets the hours of duty, generally furnishes all the tools or equipment needed to accomplish the job, as well as all the materials and how the job is to be done. The employer, upon payment for these services withhold all taxes necessary: Federal / State income taxes, Social Security and Medicare taxes and disability insurance depending on in which state the work is performed. California comes to mind now as well as some others. The employer then issues you a W-2 during January of the following year.
An independent contractor however is a self-employed individual with their own business. The contractor will establish, with the “employing” business, an agreement to perform some duty, build a shed, install wiring, etc; for a set price or sometimes at an hourly rate. The contractor will give the business an invoice for the work done. The contractor furnishes his own tools and equipment to accomplish the job. The employing business will send the contractor a 1099-Misc for Non-Employee Compensation for the earnings. The employing business sometimes may withhold Federal income taxes but never Social Security / Medicare tax. This is where the danger comes in. These earnings are subject to Self-Employment tax and you are responsible for payment on your Individual 1040 tax return.
If you think that you are working as an employee but taxes (FICA & Med) are not being withheld, you may be in for a big surprise when you file your income tax return. Even though your earnings are not for you to owe any income tax (after Capital losses, Rental losses, Itemized or Standard Deduction and Personal Exemptions) you may still owe Self-Employment tax (think Soc. Sec. Tax). If you don’t have enough withheld from your “other jobs” or from a pension/IRA you may owe a large amount, with possible penalty if you have not made estimated payments.
If you find yourself in a Workamper job where the employer is not w/h taxes and is treating you as a contractor that’s fine if that is what you intend. If it isn’t and you think that you may be in trouble at the year’s end….send me an email. You may not be able to alter the situation but you could prepare now for April 2014.