I'm an independent contractor and travel away to my Tax Home location. My employer reimburses my airfare costs but its subject to tax. Is my travel cost now a deduction?

[crewman59]

My reimbursement of my travel costs become subject to tax because the reimbursements are included in the total compensation amount on my 1099-NEC.

[DoninGA]

Deleted - Answered for an employee which was not correct.

[xmasbaby0]

Please clarify.   In the same post you say that you are an "independent contractor" but then say you have an "employer."   It cannot be both.   If you are an independent contractor, you do not have an employer---you have a client.    Did you receive a W-2 or did you receive a 1099NEC?

[crewman59]

Apoogies. Incorrect term on my part. It's an ongoing client and I receive a 1099-NEC.

[crewman59]

*Apologies.

[Opus 17]

Please explain a bit more.  Where do you live?  Why do you travel "to" your tax home (and not away from your tax home.). Where do you actually work for this client?

Note, that in general, all monies paid by your client or customer must be included in your schedule C gross income, even if not reported on a 1099-NEC.  Then, you either can deduct expenses or not, depending on the rules.  The client should probably not be reimbursing you tax-free (omitting the payment from your 1099) because the client can't take responsibility for how you file your tax returns or what deductions you qualify for.  

[ee-ea]

Your travel costs are Schedule C expenses.

[crewman59]

I live in Washington state and work in California - so I travel between my home and my tax home. (Not sure of the nuances of travelling from or to one or the other.)
My reading of the IRS tax code on the issue is that travel expenses can only be claimed if you travel To/From your Tax Home to conduct work somewhere else. Whereas the travel expenses To/From where you live and your Tax Home cannot be claimed.
Happy (and hoping) to stand corrected!

[DaveF1006 · Accepted solution]

IRS Topic 511, covers this in detail. For an example, it mentions your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. 

As far travel expenses to be claimed, Topic 511 states that you can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can't deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. This doesn't mean that travel expenses can be claimed in temporary work assignments if you are traveling between your permanent home and your tax home or vice-versa unless that travel has a business purpose. just going home to visit the family is not allowed as a travel expense. 

Here are deductible travel expenses you may claim on temporary work assignments.

1. Travel by airplane, train, bus or car between your tax home and your business destination.
2. Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
3. Shipping of baggage and sample or display material between regular and temporary work locations.
4. Using a personally owned car for business.
5. Lodging and meals.
6. Dry cleaning and laundry.
7. Business calls and communication.
8. Tips paid for services related to any of these expenses.
9. Other similar ordinary and necessary expenses related to the business travel.

Hopefully this clarifies many of the questions that have already appeared.

[crewman59]

Thank you for that reference. I hadn't seen that one and it does give some clarification to my circumstances. Much appreciated.

[Opus 17]

@crewman59 

travel outside the area of your tax home is covered in detail in chapter 4 of IRS publication 463. Including a detailed definition of tax home along with examples.

I believe your analysis is correct, that your travel expenses between Washington and California are not tax deductible on your schedule C, and they are taxable income to you if your client reimburses you. You should report all of your gross income on schedule, C, and then deduct expenses as allowed by law, which, unfortunately, does not include travel between Washington and California in your example.

A similar example is related to a former colleague of mine. He lived in Buffalo New York, but worked in Rochester. He traveled to Rochester on Monday morning, stayed three nights in a small studio apartment, worked four 10 hour days, and returned to Buffalo to be with his family for three day weekends. because this job lasted more than one year, Rochester was considered his tax home, and his travel expenses between Buffalo and Rochester were not deductible. If the employer had paid those expenses, it would be required to include them in his taxable income. 

[crewman59]

@Opus 17
Thanks for your input. I'm feeling that perhaps my initial analysis might not have been accurate. Reading through the previous reference in this thread courtesy of @DaveF1006 of IRS Topic 511, I was caught by the line: 
You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home.
For clarity, my travel from WA to CA is typically for a 2 week period of time, and happens about 6 times a year. To my thinking, this strikes me as satisfying temporary work assignment away from home, even though I might do this mulitple times a year. Perhaps that's my subjective interpretation because that's how I might want to read it to be saying. If my circumstances are, or would be, considered temporary work assignments, then perhaps I can claim the travel costs on that basis. 
The other aspect I have trouble getting my head around is that examples given (here or by the IRS) about this travel issue seem to essentially be where people COULD daily commute those distances by car, but for whatever reason don't. Whereas for me, living in WA and working in CA, a daily commute clearly isn't even thinkable. Again, I admit I might be interpreting that to suit me, but it was something I did notice.

[Opus 17]

@crewman59 

You defined California as your “tax home“.  Do you have any other work for the four weeks out of every six when you live in Washington?  If your only work is in California for those two weeks, then I would say that you just have a very long commute with an unusual work schedule, and California is your tax home.  And in that case, if this situation is either of indefinite nature, or has lasted, or is expected to last more than one year, then your travel expenses to and from California are not deductible.  The fact that your work assignments are only two weeks out of every six weeks is not enough to call the situation a temporary work assignment, if it is your only work, because if it is your only work, that makes California your tax home, and travel TO your tax home is not deductible.  

If you also perform work in Washington state, then Washington may be your tax home, and traveling to California would be a deductible expense.

Of course, you may want to have your own specific fact situation reviewed by your own professional expert.

[crewman59]

@Opus 17 

To clarify - it's for a 2 week period, about 6 times a year. 

[Opus 17]

---

@crewman59 wrote:

@Opus 17 

To clarify - it's for a 2 week period, about 6 times a year. 

---

This issue is still that you defined California as your Tax Home.   See publication 463.

https://www.irs.gov/publications/p463

https://www.irs.gov/pub/irs-pdf/p463.pdf

"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."

To deduct your travel costs from your home in Washington to your work site in California, Washington must be your Tax Home and the assignment/arrangement must be temporary.   You have not answered my prior question, do you earn money in Washington?  Is it where you earn most of your money?  Is the California work a side gig, or your main job?  And is it temporary, or indefinite?

California is your tax home if it is the only place where you earn money, or it is the place where you earn most of your money, and money earned in other places is "insignificant" compared to the amount of money earned in California.

If you earn so much of your annual income during those 12 weeks per year that income earned in Washington is "insignificant" compared to the amount of money earned in California, then California is your tax home.  And traveling from the place where you live, to your Tax Home (where you earn most of your money) is never deductible.  

(Also, don't get hung up on the one year limit for temporary work as being 365 non-consecutive days.  It's how long in calendar time that the arrangement lasts.  If your arrangement is 2 weeks in CA, 6 times a year, but that arrangement lasts more than 1 calendar year, it's not temporary, even though it might be less than 365 days.)

From the IRS:

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.

• The total time you ordinarily spend in each place.

• The level of your business activity in each place.

• Whether your income from each place is significant or insignificant.

There is more information at the linked publication.