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Car Tax Deduction

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  • Car Tax Deduction

    Can an independent contractor (1099 only) who has a home office for his physician role that only currently has 1 contract deduct the trips on Schedule C?

    I read the article on this and more importantly the comments, especially this one by WCI after Ms Fox had a differing opinion:

    "All right, you’re making me go back and read Pub 463 more carefully. Now that I reread it, I think this is probably the most relevant quote:

    Transportation expenses include the ordinary and necessary costs of all of the following.

    Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Tax home is defined in chapter 1.

    Visiting clients or customers.

    Going to a business meeting away from your regular workplace.

    Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area.

    Transportation expenses do not include expenses you have while traveling away from home overnight. Those expenses are travel expenses discussed in chapter 1 . However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. See Car Expenses , later.

    Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. However, there may be exceptions to this general rule. You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance.
    Clearly he is going from his home to a regular place of business, so he would have to meet one of the exceptions. The listed exceptions are:
    1) A temporary work site outside his metropolitan area. At 60 miles, he probably doesn’t qualify under this exception, not to mention he may be there more than a year, making it not temporary.
    2) You have one or more work locations away from your residence. Sounds like he meets this one.
    3) Your residence is your principal place of business. He doesn’t meet this one.

    Change the “OR” to an “AND” and I agree he doesn’t meet criteria. But the way it stands, it reads to me as though he does. I wish his example were included in the three examples given, but it isn’t. I wish the IRS would clarify this, as it is a very common situation among my readers (and me.) But I have yet to see anywhere they have done so.

    Your best counterargument is this paragraph:

    Office in the home. If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business.
    In this case, you must have both a qualifying home office, it must be the principal place of business, and both jobs have to be in the same business. I only meet one of those three criteria, so I don’t claim my mileage between my two jobs. But if you apply this paragraph to our questioner, he wouldn’t qualify purely based on the principal place of business rule. How you reconcile that with the quotation I cited above is beyond me. Makes me wonder if the IRS meant for that OR to read AND in which case this would be crystal clear. As it stands, I see it as a gray area."

  • #2
    Don't know what your specialty is, but as an ER doctor, I've always found it hard to justify deducting a home office (and hence car).  (e.g. how much emergency medicine do I do in my home office?)  That said, your justification for the home office (and car) would likely be bolstered if you had multiple contracts.  Ages ago, I ran the numbers and the risk/benefit profile didn't seem worth the risk or hassle.


    • #3
      I agree, it's murky. In this situation, with only 1 contract, I recommend you not take the mileage deduction. That doesn't mean you cannot have an exclusive-use home office for recordkeeping, filing, and so forth.

      Your home office must be your principal place of business. This is not the same as where you carry on your trade or profession. A principal place of business is a place that is:

      1. Used exclusively and regularly by the taxpayer to conduct administrative or management activities of a trade or business; and

      2. The only fixed location where the taxpayer conducts substantial administrative or management activities of that trade or business (Sec. 280A(c)(1)).
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


      • #4

        That is what I thought but I know many of my colleagues with the same 1 and only contract do use the transportation deductions. I flat out asked them if they could really not say it is there commute and they seem to think having the home office is enough.


        I thought the same initially but any minimal paperwork necessary to keep my contract is done from my home office since I have no other and by the letter of the law that suffices. I felt more comfortable with it after setting up my i401k and realizing my business address HAD to be my home. Plus the hassle is minimal if you use the simple estimate formula. Also remember these deductions (schedule c) are before self employment / FICA taxes are even calculated.


        • #5
          After reading the example #2 of deductible transportation I think my coworkers have a leg to stand on:

          "Your principled place of business is in your home. You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business."

          Note how it seems to indicate a home office allows this deduction even if you have only 1 client.

          Was this a new example that wasn't around in 2015 when WCI's article came out?

          The diagram WCI reproduced also clearly states it does not apply if you have a home office.


          • #6
            @docnews - let me start by saying that, theoretically, I totally agree with your logic. My partner, Laura Clifford, prepares the returns for our physician clients (I handle the 1st review) so we may be following that path ourselves. i haven’t checked, but I usually defer to her on these issues.

            That said, I subscribe to the “pigs get fatter” theory. As i stated, this is a murky area and one I’ll allow for clients if, after a discussion on the matter, our clients make the choice to take the deduction. Then we will do so only with full documentation of our advice and the client’s response.

            While I will not sign a return that has information I believe is fraudulent, I will file a return with information that I believe we can make an argument for even though I believe the return would be taken to court by the IRS - as long as I have documented my advice to the client.

            In this situation, I would be uncomfortable with our ability to make a strong case in court and also uncomfortable with the probability of audit. So, it’s my advice, but their return.
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087