Tax Deductions for Temporary Workers
recently begun work as a temporary or contract worker?
aware of the significant tax deductions now available to you as an
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:
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”:
- Car and plane flights between your home and business
- Taxis or limosines from the airport or business
lodging to your temporary work location
- Shipping and bagging costs
- Car expenses while you are away
- Lodging and meals
- Tips for any of the above services
- Business calls, faxes, computer rental fees
- Dry cleaning and laundry
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
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.
- You perform part of your business in the area of your
main home and use that home for lodging while doing business in the
- You have living expenses at your main home that you
duplicate because your business requires you to be away from that home.
- 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.
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
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
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
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.
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