Accountants CPA Hartford
William Brighenti, Certified Public Accountant
Certified Business Valuation Analyst
Certified QuickBooks ProAdvisor
Office Address:  46 Mildrum Road, Berlin, Connecticut 06037-2423      Phone:  (860) 828-3269      Email:  info@cpa-connecticut.com
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Tax Deductions for Temporary Workers

Have you recently begun work as a temporary or contract worker?
Are you aware of the significant tax deductions now available to you as an independent contractor?

If you are a temporary or contract worker, one of the significant tax deductions now available to you is travel expense.  The Internal Revenue Service defines “travel expenses” as the following:

the ordinary and necessary expenses of traveling away from home for your business, profession, or job.  An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business.

Always in its own inimitable fashion, the internal revenue service issues what appear to be at first glance simple definitions or instructions to the reader; but here as well as in so many IRS publications, these everyday phrases, such as “ordinary and necessary expenses” or “traveling away from home”, have very specific limited definitions for the tax return filer.

Deductible travel expenses typically include the following:
  1. Car and plane flights between your home and business destination
  2. Taxis or limosines from the airport or business lodging to your temporary work location
  3. Shipping and bagging costs
  4. Car expenses while you are away
  5. Lodging and meals
  6. Tips for any of the above services
  7. Business calls, faxes, computer rental fees
  8. Dry cleaning and laundry
Another phrase mentioned above loaded with IRS significance is “traveling away from home”.  The Internal Revenue Service has a complicated definition for what you would normally consider your “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 do not have a regular or a main place of business because you were recently laid off from work, your normal residence would constitute your tax home if it meets all three of the following conditions:
  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 have not 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.
Consequently, if you were looking for work at home or undertook some preparatory work at home, you would meet all three of the above conditions, and your residence would qualify as your tax home.

An additional important requirement for your primary residence to qualify as your permanent home for tax purposes is that your work assignment is indeed temporary and not transitional work toward an eventual permanent job later.  In other words, if the temporary assignment is contracted for one year or less, then it constitutes temporary work; consequently, your travel expenses would be deductible as such.  However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year, whether or not it actually lasts for more than one year.
 
For instance, assume you reside in San Francisco and for the past twenty years you were employed at a major corporation, which recently has outsourced much of its office work to an employment center in India; consequently, you were laid off in April, 2009.  After collecting unemployment for a couple of months, you accepted a seven-month contract assignment to work as an independent contractor for a utility company in Connecticut.  Your family remains in California while you rent a room in Connecticut.  Is your residence considered your tax home?  In this situation, it appears that it does.  The assignment is for one year or less; and your residence is your tax home, since you were looking for work there initially, your family still resides there, and you continue to pay for the living expenses of that home.

There are some limitations of which you should be aware regarding your deductions for meals and visits home.  You are allowed to deduct up to 50% of your meals (excluding any “lavish” extravagant feasts) based on actual costs or the standard meal allowance.  If you use the actual cost method, you must keep accurate records of your cost.  Generally a record of the amount, date, place, and essential character of the expense is sufficient for documentation of the actual cost of meals.  You can use a log, diary, notebook, or any other written record to keep track of your expenses. Receipts are required for any expenses exceeding $75.

The standard meal allowance is $39 per day, which allows $7 for breakfast, $11 for lunch, $18 for dinner, and $3 for incidentals.  However, since your temporary work assignment will be in a specific location, you are required to use the rates published by the U.S. General Services Administration website for your “destination”.  For instance, for Hartford, Connecticut, for 2010, the standard meal allow is $56 per day.  Of course, the best strategy to pursue is to keep records on both the actual costs of meals and the per diem rates and then to use the larger amount for your deduction.

If you go back to your tax home from a temporary assignment on your days off, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work.  If you keep your hotel room or other lodging during your visit home, you can deduct its rental cost. In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work.

For additional information on tax deductions for temporary or contract workers, please contact William Brighenti, Certified Public Accountant, Accountants CPA Hartford.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.  The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein.  The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor .
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