Travel? (Network Marketing Related)

Technical topics regarding tax preparation.
#1
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Have a couple questions for those who are familiar with taxes for clients in the network / multi level marketing business. Have client (MFJ with three young children) who earn 100% of their family income (about $140K) via multi level marketing. They plan to buy a truck plus trailer/RV when their current lease ends, and travel the US for a year. Aw, freedom. :) Now they're trying to project the tax advantages available to them, because, you know, all those YouTube videos say you can write off just about everything in multi level marketing!
Serious question:
(1.) How would business miles be calculated in such a case? Their tax home would be ... the state they left? Once they set off into American the Beautiful for a year, most all of their miles would be personal. Occasionally they could meet with a current distributor and/or meet with a prospective distributor or customer, But how would you track the business miles (ie., from what starting point?)
(2.) What would be considered "travel"? Typically they incur flight, hotel, etc costs to go the annual company convention ... but if they're already on the road in the RV, and stop in at a convention site, where did the travel start from?
(3.) How would you figure business use percentage should they buy a truck and want to claim the big Section 179 deduction ($25,000 for 6,000 GRVW)? If it goes below 50% (which is likely) won't the deduction get taken back via depreciation recapture?

P.S. Any other strategies or ideas around how to maximize their dreams and at the same time minimize their tax liability are appreciated.
 

#2
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Do they currently maintain a home office? RVs can qualify as a residence last I checked (as do certain boats, FYI), so I would take that into consideration. Perhaps part of the RV needs to be deemed home office, and the mileage would be based on its present location as of when your client needs to travel to conduct business.

If mileage falls below 50%, yes, you will not be able to take depreciation and risk recapture. If it is known it will fall below 50%, I would not put it into business as a depreciable asset. Sounds like they want to buy a truck to pull a 5th wheel, no? Or is an RV going to tow the truck? If so, could they not buy a trailer for the truck so it minimizes actual mileage on truck for personal vs. business use? I would treat RV as a residence, assuming the IRC still allows for such (not sure if Tax Act changed anything other than amount of total qualified interest that can be deducted). Do they even itemize to gain benefit? You mentioned lease, so I take that to mean they do not own a primary residence at the moment.

I would also be concerned about them potentially spending too much time in an area and triggering nexus despite their claimed state of domicile.

Strictly high level thoughts without any research/verification.
 

#3
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Cornerstone, my understanding is the truck would pull the RV (ie., 5th wheel). I thought about the RV being the residence, but didn't know if the tax code somehow required that the RV be an "all in one RV" as opposed to a 5th wheel in order to qualify as being the residence.
They do not itemize now. No mortgage, no interest, not enough charitable contributions. Obviously even less likely to itemize in 2018 under tax reform.
Hadn't though about the home office angle so that present location is used as basis for travel / mileage. Thank you!
 

#4
makbo  
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"An itinerant worker has neither a regular place of business nor a regular place to live. An itinerant worker’s tax home is wherever there is work. No travel expenses can be deducted because the taxpayer is never considered to be traveling away from the tax home." [TheTaxBook]

No tax home means no travel expense deductions. "They plan to buy a truck plus trailer/RV when their current lease ends, and travel the US for a year." This supports that they will have no tax home.
 

#5
JR1  
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You've no idea how much it galls me to agree with my Socialist friend here...lol, but I was thinking the same thing. IRS would say they've abandoned their tax home, so it is now wherever they are. No travel. At all. That may surprise most of you who consider me the aggressive rogue around here....and it may surprise Mak most of all...lol.
Go Blackhawks! Go Pack Go!
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#6
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makbo wrote:"An itinerant worker has neither a regular place of business nor a regular place to live. An itinerant worker’s tax home is wherever there is work. No travel expenses can be deducted because the taxpayer is never considered to be traveling away from the tax home." [TheTaxBook]

No tax home means no travel expense deductions. "They plan to buy a truck plus trailer/RV when their current lease ends, and travel the US for a year." This supports that they will have no tax home.


Interesting. I haven't had to deal with this, my clients are "steady." Does the IRC provide any definition concerning length of time that defines itinerant, or just not being in the same location for most of a tax year? I'd argue the RV would be the regular place to live, but obviously it is portable and thus removes place of domicile if no other location is retained and utilized.
 

#7
makbo  
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I don't know about the IRC, but I'm sure there are tax court cases. Also, there is some terminology that you should be aware of, since you say you haven't dealt with this. "Domicile" (and residency, which is a different but related concept) are not the same thing as "tax home". "Tax home" is not about where you live, it is about where you work. See Pub 463: "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." The pub goes on to explain more about your situation, you should check it out.

Domicile, by contrast, is something you acquire at birth, and you always retain your current domicile until you clearly establish a new one. But travel expenses have nothing directly to do with your domicile.
 

#8
JR1  
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There are very recent cases...no time to dig them out, tho'. I think it was a trucker on the last one.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#9
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Let's include more of the actual publication, since the discussion expands well beyond what was quoted for "tax home" being based on where you work. Is it a primary factor? Yes, but there can be other ways of determining tax home.

I am curious where you identified your definition of domicile in this context (I agree with it if we're discussing country of citizenship, but not necessarily state and city/town, which domicile obviously still entails). By all accounts I have read and heard, including court cases and revenue agencies, it is based on intent of residency with a fixed dwelling. Flip side, you can maintain other residences without having domicile.

Tax Home

To determine whether you are traveling away
from home, you must first determine the location
of your tax home.

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.

If you have more than one regular place of
business, your tax home is your main place of
business. See Main place of business or work,
later.

If you don’t have a regular or a main place of
business because of the nature of your work,
then your tax home may be the place where you
regularly live. See No main place of business or
work, later.

If you don’t have a regular or main place of
business or post of duty and there is no place
where you regularly live, you are considered an
itinerant (a transient) and your tax home is
wherever you work. As an itinerant, you can’t
claim a travel expense deduction because you
are never considered to be traveling away from
home.

Main place of business or work. If you have
more than one place of work, consider the following
when determining which one is your
main place of business or work.

[list=]The total time you ordinarily spend in each
place.[/list]
[list=]The level of your business activity in each
place.[/list]
[list=]Whether your income from each place is
significant or insignificant.[/list]

Example. You live in Cincinnati where you
have a seasonal job for 8 months each year and
earn $40,000. You work the other 4 months in
Miami, also at a seasonal job, and earn
$15,000. Cincinnati is your main place of work
because you spend most of your time there and
earn most of your income there.
No main place of business or work. You
may have a tax home even if you don’t have a
regular or main place of work. Your tax home
may be the home where you regularly live.
Factors used to determine tax home. If
you don’t have a regular or main place of business
or work, use the following three factors to
determine where your tax home is.

1. You perform part of your business in the
area of your main home and use that
home for lodging while doing business in
the area.
2. You have living expenses at your main
home that you duplicate because your
business requires you to be away from
that home.
3. You haven’t abandoned the area in which
both your historical place of lodging and
your claimed main home are located; you
have a member or members of your family
living at your main home; or you often use
that home for lodging.

If you satisfy all three factors, your tax home
is the home where you regularly live. If you satisfy
only two factors, you may have a tax home
depending on all the facts and circumstances. If
you satisfy only one factor, you are an itinerant;
your tax home is wherever you work and you
can’t deduct travel expenses.

Example 1. You are single and live in Boston
in an apartment you rent. You have worked
for your employer in Boston for a number of
years. Your employer enrolls you in a 12-month
executive training program. You don’t expect to
return to work in Boston after you complete your
training.

During your training, you don’t do any work
in Boston. Instead, you receive classroom and
on-the-job training throughout the United
States. You keep your apartment in Boston and
return to it frequently. You use your apartment
to conduct your personal business. You also
keep up your community contacts in Boston.
When you complete your training, you are
transferred to Los Angeles.

You don’t satisfy factor (1) because you
didn’t work in Boston. You satisfy factor (2) because
you had duplicate living expenses. You
also satisfy factor (3) because you didn’t abandon
your apartment in Boston as your main
home, you kept your community contacts, and
you frequently returned to live in your apartment.
Therefore, you have a tax home in Boston.

Example 2. You are an outside salesperson
with a sales territory covering several
states. Your employer's main office is in Newark,
but you don’t conduct any business there.
Your work assignments are temporary, and you
have no way of knowing where your future assignments
will be located. You have a room in
your married sister's house in Dayton. You stay
there for one or two weekends a year, but you
do no work in the area. You don’t pay your sister
for the use of the room.

You don’t satisfy any of the three factors listed
earlier. You are an itinerant and have no tax
home.

Tax Home Different From
Family Home

If you (and your family) don’t live at your tax
home (defined earlier), you can’t deduct the
cost of traveling between your tax home and
your family home. You also can’t deduct the
cost of meals and lodging while at your tax
home. See Example 1, later.

If you are working temporarily in the same
city where you and your family live, you may be
considered as traveling away from home. See
Example 2, later.

Example 1. You are a truck driver and you
and your family live in Tucson. You are employed
by a trucking firm that has its terminal in
Phoenix. At the end of your long runs, you return
to your home terminal in Phoenix and
spend one night there before returning home.
You can’t deduct any expenses you have for
meals and lodging in Phoenix or the cost of
traveling from Phoenix to Tucson. This is because
Phoenix is your tax home.

Example 2. Your family home is in Pittsburgh,
where you work 12 weeks a year. The
rest of the year you work for the same employer
in Baltimore. In Baltimore, you eat in restaurants
and sleep in a rooming house. Your salary is
the same whether you are in Pittsburgh or Baltimore.
Because you spend most of your working
time and earn most of your salary in Baltimore,
that city is your tax home. You can’t deduct any
expenses you have for meals and lodging
there. However, when you return to work in
Pittsburgh, you are away from your tax home
even though you stay at your family home. You
can deduct the cost of your round trip between
Baltimore and Pittsburgh. You can also deduct
your part of your family's living expenses for
meals and lodging while you are living and working in Pittsburgh.
 

#10
makbo  
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CornerstoneCPA wrote:Let's include more of the actual publication, since the discussion expands well beyond what was quoted for "tax home" being based on where you work.
[...] Flip side, you can maintain other residences without having domicile.

I suggest linking to the IRS web site, instead of posting such a lengthy verbatim quote of a pub.

I did encourage the OP to read further in the pub since I thought it might contain information that he was looking for. It's a great place to start for someone who has not previously worked with these concepts, and then decide maybe whether searching the code and regs would be productive.

At least, now he knows the basic rule, and can look for exceptions or special cases if worth it. As usual, the tax tail shouldn't wag the dog -- if the only reason this trip makes sense is because of taxes, then I think something is being overlooked.

Residency and domicile are not directly related to tax home, as I stated. Everyone has exactly one domicile at all times, by definition; this is not so of the other two attributes. If you traveled non-stop for ten years, your domicile would still be where it was before, but you almost certainly would not have a tax home.
 

#11
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Real question: Does an itinerant have no tax home, or does an itinerant have a tax home that s/he never leaves because it travels wherever...?

The quoted everything-you-will-ever-want-to-know-about-tax-home documentation seems to disagree with itself on the answer to this question. :roll:
 

#12
lckent  
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See Dellward R. Jackson, et ux. v. Commissioner, TC Memo 2014-160.

No deduction allowed for business use of RV.
CPA, Retired
 

#13
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makbo wrote:I suggest linking to the IRS web site, instead of posting such a lengthy verbatim quote of a pub.

Residency and domicile are not directly related to tax home, as I stated. Everyone has exactly one domicile at all times, by definition; this is not so of the other two attributes. If you traveled non-stop for ten years, your domicile would still be where it was before, but you almost certainly would not have a tax home.


Seemed better fitting to quote the specific section than post a pub that contains much more information irrelevant to discussion.

We're in agreement on residency/domicile/itinerant/tax home...just think some of of our wording caused confusion.

Spell Czech wrote:Real question: Does an itinerant have no tax home, or does an itinerant have a tax home that s/he never leaves because it travels wherever...?

The quoted everything-you-will-ever-want-to-know-about-tax-home documentation seems to disagree with itself on the answer to this question. :roll:


Technically they have a tax home...it is wherever they happen to work, so it is constantly changing since it follows the worker. This is from RR 75-432, worth a read since it covers this subject and tax homes in general:

"This should be distinguished from the case of an itinerant worker with neither a regular place 111C of business nor a regular place of abode. In such case, the home is considered to go along with the worker and therefore the worker does not travel away from home for purposes of section 162(a)(2) of the Code, and may not deduct the cost of meals or lodging. Rev. Rul. 73-529, 1973-2 C.B. 37; Rev. Rul. 71-247, 1971-1 C.B. 54."
 

#14
skassel  
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FYI, be VERY careful whenever doing the tax returns of Network Marketing people. To say that there is a tendency to greatly overexaggerate expenses is an understatement.
Steve Kassel, EA
 

#15
JR1  
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Usually only lasts a year or two, tho'. lol!
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#16
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Interesting wordplay with the "overexaggerate" rather than just a simple "exaggerate." Touché.
 

#17
Nilodop  
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Don't misunderestimate our members.
 

#18
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Not a day doesn't go by that I don't think about not using a double negative.
 

#19
skassel  
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You'll notice I also added greatly in front of overexaggerate. I know MLM/Network Marketing people...far too well and believe me they will take anything, everything and more than that.
Steve Kassel, EA
 


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