I’d like to try and crowdsource an answer to a tax question I’ve had over the years but never felt like I had a good answer to:
IRS Topic 511, Business Travel Expenses, describes qualifying expenses while travelling. It is written with a very employee-centric tone, which isn’t particularly helpful for me as a self-employed consultant who works primarily out of his own home office.
1) Is New York City “close enough” to New Jersey to consider it the same “general area” or does travelling to New York City count as valid business travel in my case?
Suppose I have a client (one of many) for whom I travel, once a week, from my home office in New Jersey to their office in New York City. Since I earn the majority of my income working out of my home office in New Jersey, I think it’s appropriate to consider New Jersey my “tax home.” But, the tax topic is worded using the phrase “general area” which is vague. How is this supposed to be interpreted?
2) What does the IRS consider an “assignment”?
Topic 511 refers to temporary and indefinite “assignments” and talks about durations less and greater than one year. For the self-employed consultant, are clients considered “assignments”? Are individual projects for a client an “assignment”? I can’t find a definition for “assignment” in the IRS Tax Glossary.
Most clients of mine are of the “indefinite” kind, ones I intend to work with for at least a year or more. Individual projects for my clients generally span anywhere from less than a single day up to several months, but never a year or more.
I think this qualifies my one-day-a-week on-site visits as “short term travel” and therefore my travel expenses are deductible, but given sufficiently loose interpretations in the IRS’s favor, it makes me nervous. How is this supposed to be interpreted?
Naturally, I can arrive at my own conclusions and interpretations of what this all means. What I’d like to know is if anyone here has dealt with the IRS with respect to these two issues, and what their official stance is.
I suppose I could try and call the IRS and try to explain this to them and get an answer, but I’m not too keen on getting a verbal one-off interpretation by some call center representative. Getting this in writing is somewhat important, for obvious reasons.
Don’t call the IRS. But do consult a CPA or tax attorney (a real one, not someone at H&R block).
It’s a shame there’s no StackOverflow-like site for tax questions and answers … :-(
Hi Dossy, Aaron Price asked me to help you out on this question.
First let me say that as a general principle of tax law: All Income is includable unless specifically excluded but Deductions are a matter of legislative GRACE and the taxpayer has the burden of showing entitlement to a deduction.
Having said this, I want to point out that you are correct when you say that the explanations in Topic 511 is not particularly helpful as it references “employee business expenses”. IRS Form 2106 Employee business expense forms flows to Itemized deductions on schedule A.
You did not mention whether your business was a sole proprietorship or an LLC treated as a sole proprietorship. I will assume that this is the case. Such expenses would flow on Form 1040 in arriving at “adjusted gross income”. On that basis, I would say check out IRS publication 334 “Tax Guide for Small Business” page 37 and 38. Meals are generally personal expenses but there are 2 circumstances when you can deduct a portion of meals. When meals are considered to be part of travel expenses or when part of entertainment of clients, customers or employees. See IRS Publication 463 which goes into more details and page 3 & 4 which discusses “tax home”.
Note also that there are strict recordkeeping requirements when deducting expenses that could be personal in nature. For example, for meals you need to keep the following records:
– Date of entertainment
– Name and address or location of place of entertainment
– Business Purpose for the expense or the business benefit gained or expected to be gained
– Relationship i.e. names, titles about the recipients that shows their business relationship to you.
I hope you find this information helpful.
Thanks, reading up on IRS Pub 463 was really helpful. It appears that “travel away from home” requires travel that includes a rest away from home — in other words, longer than one day.
How should I handle the expense of my bus ticket to and from NYC from NJ? Can I not claim that cost as a deductible expense? It sounds like I can’t.