Tax rules for travelers?

NedRN · Nov 30, 2014

Did you mean minimizing your taxes? Minimizing your risk of an audit is a related question, but rare to be asked here. Generally speaking, nurse and travel nurses have low risk of an audit based on our annual income. Most audits come from issues related to your return and itemized deductions. Yes, your Schedule C (or do you have an LLC or corp?) does raise your audit risk some, depending on your revenue and business deductions.

There are lots of interesting tax issues for travelers, so many that you can find perhaps a hundred thousand words in articles on the topic on PanTravelers and TravelTax. Most deal with the issue of business expenses incurred working away from a legitimate tax home - an IRS phrase with a specific meaning. For most travelers, agencies supply either housing or a housing stipend and a daily stipend for meals and incidentals, all tax-free for qualifying travelers. The audit issue here is that many travelers receive tax free "reimbursements" (the technical name) but do not have a qualifying tax home. Thus if they get audited for any other reason (usually related to itemizing their 1040), then they can be stuck with a huge tax bill for back taxes, interest, and penalties. After just three years of traveling, this could be over $100,000! It happens not infrequently so it is good to seek out the right way to do travel rather than rely on agency recruiters.

Almost always, travelers are better off looking for the highest level of tax-free reimbursements they can find from an agency (assuming a valid tax home) versus taking all compensation taxed and itemizing business expenses (housing, M&IE, and professional expenses such as licensure and scrubs). The thresholds involved in itemizing, the 50% reduction in M&IE, housing that is limited to actual receipted expenses, all combine to make the standard deduction superior for most travelers.

Now there is a "tail" of additional expenses you are in a good position to take advantage of since you have another business (assuming sufficient revenue). Seldom does an agency travel allowance come to the full IRS allowed mileage of 56 cents a mile. Nor (unless you are in home health) do they give you an allowance for your commute for your shifts at your assignment to and from your remote housing. Nor does the M&IE stipend ever match the allowable M&IE found on the GSA site. So you can add up both of those, subtract the agency amount, and deduct the rest.

What I'm going to suggest may be a little aggressive, and since I'm not a tax professional, nor will I attend your audit, you may want to run this by your tax guy. I'm suggesting taking these expenses off first dollar on your schedule C (you will have to run the M&IE through form 2106 prior to flowing them to schedule C). The reason that it is slightly aggressive is that the first line IRS auditor (knock on wood) may require business expenses deducted on your schedule C to be directly related to the business you are receiving revenue for. That may even be correct, but in my mind, you have unreimbursed business expenses and the schedule C is an appropriate place for any business related expenses.

In any case, this "tail" (my phrase) is not going to be a huge amount of money, so I think it is an appropriate risk to take. It won't by itself increase your audit risk, and it is indeed a legitimate expense and it makes a lot of sense to use schedule C to file it rather than itemizing it personally. I have a good friend who received both 1099 and W-2 income this year and I made the same suggestion to him. In the past - he has traveled for several years, he has itemized this tail as he itemizes anyway (mortgage) but it is still more efficient to do the expenses on a schedule C (first dollar so you haven't already paid FICA on it). That doesn't make it correct of course (I think it could go either way) so use your own judgment and that of your tax professional. I have a C corp with three distinct businesses so I always have a business purpose for most trips away from home.

Probably more info than you wanted, and to fully understand traveler taxation, you may have to do a lot of reading on PanTravelers, and/or TravelTax! As far as I know, neither site addresses being a traveler with a side business. With your business experience, you may be a good candidate to ultimately cut out the middleman and contract directly with hospitals. That provides a nice bump in compensation even before the tax benefits. Too much for most travelers of course as effectively you will be starting your own agency.

blkbelt3dg · Dec 1, 2014

A font of information Ned! Thanks. I will check out those other websites. I should have been more clear. I was looking for tax deductions and legality of what I can and cannot deduct. You are correct in that my business makes it more complicated; especially since it has nothing to do with nursing. My wife and I run a food truck on weekends and own a retail food store that is attached. The store is an LLC, which is claimed as a corporation and the food truck runs as an extension of the store under a DBA. Both incomes roll into a corporate tax role so there are deductions I can take as part of the business and then I can add unreimbursed business expenses to my personal taxes. That's where the real complications come in trying to keep corporate, personal, and my work expenses separate but claim as many legal deductions as I can. I am going to have to break down and hire a good accountant this year as next year we are going to become a C-Corp and roll our 401k's into the business to become debt free.

I would love to be able to contract for myself as a nurse but don't have the foggiest idea how to get started doing that. If anyone has experience starting their own company, I'd love to get together and discuss. I know the smaller companies I have been in contact with have much higher margins to payout so I am more than sure there is a much bigger gain there in the long run. My dream has always been to own a company that helps empower employees to be the best they can be. I love the idea of having an EMPLOYEE OWNED travel business. That way we'd all have a stake in making the company profitable and I believe employees would be more satisfied with their jobs.

Anyway, off on tangents here. Thanks again for the great info!

NedRN · Dec 1, 2014

You still have the same professional deductions available as a traveler no matter your tax home status which include associations, licenses, certifications, education (may be limited there), and scrubs.

If you are traveling away from your tax home on business, you can deduct mileage, tolls, housing, and meals. To the extent that some of these are reimbursed by your agency, you must subtract them from those reimbursements. Each is handled somewhat differently.

Housing must be actual receipted costs but you would only deduct that if your actual housing costs exceeds the agency reimbursement (or stipend). If you receive an agency stipend legally, it is yours to spend as you wish, you do not need to spend it all. The remainder is still tax free and is not reported as income by you or your agency.

M&IE can also be deducted. Here you would use the GSA amount for your assignment every day of the week, subtract it by half per form 2106, and then subtract the amount reimbursed by your agency. Deduct the balance. If your agency does not separate the housing and M&IE stipend, calculate housing at 60% of the stipend, and M&IE at 40%.

Mileage at the current rate of 56 cents a mile less what the agency reimburses you (include your remote commute - perhaps the largest thing travelers miss).

If you can use your LLC to deduct these expenses first dollar, you will be ahead. It probably isn't worth adding any of these to personal deductions.

I happen to be a C-corp as well, but that is very unusual outside of very large companies. I think you will find that most accountants will recommend S-corp or LLC as superior. I disagree for revenue in our tax bracket but opinions vary. If you google my screen name and FAQ you will find a blog that details my thoughts on the subject and step by step instructions for starting your own one person agency (somewhat dated but fundamentally sound still).