Can I deduct travel time as an independent contractor?
January 26, 2012 11:33 AM Subscribe
Can I deduct mileage expenses when working as a part-time independent contractor?
I have a full-time job (where I'm an employee for tax purposes) and I have recently picked up some freelance part-time bookkeeping work on the side (where I will be an independent contractor for tax purposes).
As an aside, both the full-time and the part-time bosses know about my working for each of them.
The part-time boss seems to think that as an independent contractor, I can deduct mileage/automobile costs on my tax return while I work for him. I'm not so sure that I can, though if it turns out that I can, I'll start keeping track.
The part-time job will consist of my driving to his office, working, then driving back home.
Turbo Tax says that "if you are self-employed and your home is your principal place of business, you can deduct the cost of driving from home to see a client or to go to another work location."
I am, technically, driving to another work location, which makes me think that I can deduct the mileage costs.
Tax Form Processing states that commuting expenses are not deductible.
I suspect the answer will be that I am not allowed to deduct the mileage costs associated with driving to the part-time job's office. But I became confused when I read the TurboTax explanation and figured it doesn't hurt to ask here.
Any help is appreciated. Thanks.
I have a full-time job (where I'm an employee for tax purposes) and I have recently picked up some freelance part-time bookkeeping work on the side (where I will be an independent contractor for tax purposes).
As an aside, both the full-time and the part-time bosses know about my working for each of them.
The part-time boss seems to think that as an independent contractor, I can deduct mileage/automobile costs on my tax return while I work for him. I'm not so sure that I can, though if it turns out that I can, I'll start keeping track.
The part-time job will consist of my driving to his office, working, then driving back home.
Turbo Tax says that "if you are self-employed and your home is your principal place of business, you can deduct the cost of driving from home to see a client or to go to another work location."
I am, technically, driving to another work location, which makes me think that I can deduct the mileage costs.
Tax Form Processing states that commuting expenses are not deductible.
I suspect the answer will be that I am not allowed to deduct the mileage costs associated with driving to the part-time job's office. But I became confused when I read the TurboTax explanation and figured it doesn't hurt to ask here.
Any help is appreciated. Thanks.
If you're getting income as an independent contractor, you really really need to hire a CPA for your taxes anyway, especially if you also have W-2 income. You should do that post-haste and ask them.
posted by strangely stunted trees at 11:41 AM on January 26, 2012
posted by strangely stunted trees at 11:41 AM on January 26, 2012
IAAL, IANYL, TILNA. I am NOT a tax lawyer, but I have worked as an independent contractor.
The way that I have done it: I work from home. If, as a result of the requirements of what I have been hired to do, I am required to travel--to a worksite, to court, to the library--then that is part of the expense of my business. Therefore, deductible.
Hiring a CPA is a good idea for this, because depending upon your automobile situation, you may get mileage plus depreciation (or other nifty tips and tricks). Plus other deductible expenses that you aren't thinking of, just because you aren't trained to.
TL;DR: Get a CPA.
posted by China Grover at 11:48 AM on January 26, 2012
The way that I have done it: I work from home. If, as a result of the requirements of what I have been hired to do, I am required to travel--to a worksite, to court, to the library--then that is part of the expense of my business. Therefore, deductible.
Hiring a CPA is a good idea for this, because depending upon your automobile situation, you may get mileage plus depreciation (or other nifty tips and tricks). Plus other deductible expenses that you aren't thinking of, just because you aren't trained to.
TL;DR: Get a CPA.
posted by China Grover at 11:48 AM on January 26, 2012
Do you have a home office? Is your home your place of work? You are allowed to deduct mileage expenses that are a result of traveling from your place of work in order to work.
posted by the man of twists and turns at 11:53 AM on January 26, 2012
posted by the man of twists and turns at 11:53 AM on January 26, 2012
If I remember right, the trips to and back from your place of business each day are not deductible -- that's the commuting part. However, driving from one business engagement to another during the work day IS deductible. The Turbo-Tax advice is saying that if your home is your primary place of business, you have a commute of zero miles; you're already "at work" before you leave to see your client.
posted by jon1270 at 11:53 AM on January 26, 2012
posted by jon1270 at 11:53 AM on January 26, 2012
where I will be an independent contractor for tax purposes
Really? Sounds fishy to me. It sounds to me like you're a part-time employee, not an independent contractor, because:
The part-time job will consist of my driving to his office, working, then driving back home.
If your employer designates the place that you do your work, and the time that you do it, that makes you look a lot like a traditional, part-time employee. Independent contractors generally have significant flexibility in setting their own schedules, even those that do have a single place where they work, e.g. cosmetologists. They also generally provide their own supplies. If your boss tells you when to show up to work and gives you the use of a computer to do said work, there's a decent chance the IRS is going to say that you're an employee, not an independent contractor, which would not only result in a difference in terms of your ability to deduct various expenses but also possibly fines for your employer.
This really could go either way, and the employee/independent contractor distinction is sort of murky. It's a fact-intensive question handled on a case-by-case basis. So I'd say that you and your boss need an accountant, if not an actual tax attorney.
posted by valkyryn at 12:12 PM on January 26, 2012
Really? Sounds fishy to me. It sounds to me like you're a part-time employee, not an independent contractor, because:
The part-time job will consist of my driving to his office, working, then driving back home.
If your employer designates the place that you do your work, and the time that you do it, that makes you look a lot like a traditional, part-time employee. Independent contractors generally have significant flexibility in setting their own schedules, even those that do have a single place where they work, e.g. cosmetologists. They also generally provide their own supplies. If your boss tells you when to show up to work and gives you the use of a computer to do said work, there's a decent chance the IRS is going to say that you're an employee, not an independent contractor, which would not only result in a difference in terms of your ability to deduct various expenses but also possibly fines for your employer.
This really could go either way, and the employee/independent contractor distinction is sort of murky. It's a fact-intensive question handled on a case-by-case basis. So I'd say that you and your boss need an accountant, if not an actual tax attorney.
posted by valkyryn at 12:12 PM on January 26, 2012
You sound like an independent contractor. The general rule is that an individual is an independent contractor if the payer has the right to control or to direct only the result of the work and not how it will be done.
As an independent contractor you can deduct documented mileage from your home to a job site, or from your work to a job site, whichever is smaller. Going from home to the office is not deductible. The standard deduction this year is 51 cents/mile. It adds up fast.
I am not an accountant, tax attorney, or in any way qualified to take responsibility if this all goes horribly wrong, but when I was tutoring for an agency that's how we were told to do it, and casual internet research led me to trust them.
N.B. - You get standard mileage or you can calculate depreciation. "A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle." See above link.
posted by Garm at 12:35 PM on January 26, 2012
As an independent contractor you can deduct documented mileage from your home to a job site, or from your work to a job site, whichever is smaller. Going from home to the office is not deductible. The standard deduction this year is 51 cents/mile. It adds up fast.
I am not an accountant, tax attorney, or in any way qualified to take responsibility if this all goes horribly wrong, but when I was tutoring for an agency that's how we were told to do it, and casual internet research led me to trust them.
N.B. - You get standard mileage or you can calculate depreciation. "A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle." See above link.
posted by Garm at 12:35 PM on January 26, 2012
Response by poster: k5.user: I will be receiving a 1099 for the work I do.
the man of twists and turns: My home is not my place of work, but I will often be driving from my employee-based office to the contractor-based office.
valkyryn: Other than working initially at his office (he has told me he would be open in the future to my telecommuting from home), I will be setting my own hours. He has been very clear that when I do the bookkeeping will be completely up to me. However, I will be using his computer and his office supplies.
---
Talking to a CPA and/or tax attorney is a good idea, thank you everyone for your advice on that.
posted by lea724 at 12:41 PM on January 26, 2012
the man of twists and turns: My home is not my place of work, but I will often be driving from my employee-based office to the contractor-based office.
valkyryn: Other than working initially at his office (he has told me he would be open in the future to my telecommuting from home), I will be setting my own hours. He has been very clear that when I do the bookkeeping will be completely up to me. However, I will be using his computer and his office supplies.
---
Talking to a CPA and/or tax attorney is a good idea, thank you everyone for your advice on that.
posted by lea724 at 12:41 PM on January 26, 2012
Best answer: First and foremost, always remember: you can deduct anything in the sense that you can write it down and submit your return. The guiding concern you should always have is "can I defend this in an audit?" I always keep in mind "is it worth it?" as well.
That said, you can certainly claim miles taken that are exclusively in service of your own business. My wife and I do art shows and I count the mileage we use up going to the shows and take the standard mileage deduction (which rolls together a fuel & depreciation cost into a fixed amount).
Part of doing that is keeping a log. For me it's just a small spiral notebook that sits on the console of my crappy old cargo van. Whenever we take it anywhere I note in it the starting mileage on the odometer, the date, and a reminder note (Manayunk Art Festival, PA, for example). I make the same note when we return.
I also note the mileage on the 1st day of the year and the last.
That's all that's required based on my layman's reading of the law/regs. If you pay someone to do your taxes this is something you should ask them about. You can also do your own research on the IRS's small business page. Some information on vehicles and records is here.
The most important thing, getting back to that audit issue, is that you can document that you are making a good faith effort to comply with the law. If you're ever audited and they call this non-deductible you want to be able to point to some reasonable basis ("I was told by a random internet jackass" isn't one I'd want to use) for your belief so that you're not subject to larger penalties.
posted by phearlez at 12:44 PM on January 26, 2012
That said, you can certainly claim miles taken that are exclusively in service of your own business. My wife and I do art shows and I count the mileage we use up going to the shows and take the standard mileage deduction (which rolls together a fuel & depreciation cost into a fixed amount).
Part of doing that is keeping a log. For me it's just a small spiral notebook that sits on the console of my crappy old cargo van. Whenever we take it anywhere I note in it the starting mileage on the odometer, the date, and a reminder note (Manayunk Art Festival, PA, for example). I make the same note when we return.
I also note the mileage on the 1st day of the year and the last.
That's all that's required based on my layman's reading of the law/regs. If you pay someone to do your taxes this is something you should ask them about. You can also do your own research on the IRS's small business page. Some information on vehicles and records is here.
The most important thing, getting back to that audit issue, is that you can document that you are making a good faith effort to comply with the law. If you're ever audited and they call this non-deductible you want to be able to point to some reasonable basis ("I was told by a random internet jackass" isn't one I'd want to use) for your belief so that you're not subject to larger penalties.
posted by phearlez at 12:44 PM on January 26, 2012
The standard deduction this year is 51 cents/mile.
It's more than that now.
posted by valkyryn at 12:51 PM on January 26, 2012
It's more than that now.
posted by valkyryn at 12:51 PM on January 26, 2012
Best answer: I will often be driving from my employee-based office to the contractor-based office -this is commuting, you're simply going from one job to another in the same way you would if the second job was at Walmart. If you have to make sales calls, go to clients' offices or homes - that would count at deductible mileage as it's transportation costs outside of simply going to your place of employment.
posted by shoesietart at 12:57 PM on January 26, 2012 [1 favorite]
posted by shoesietart at 12:57 PM on January 26, 2012 [1 favorite]
Response by poster: Just to update valkyryn's answer about mileage, the 2012 mileage rates are increased from 2011, but the link should be this one.
posted by lea724 at 1:03 PM on January 26, 2012
posted by lea724 at 1:03 PM on January 26, 2012
You should be able to deduct it. Its a business expense for your business (as opposed to your job)
Nthing the get an accountant. If you're doing independent contracting have an accountant (or a very good tax professional who works for an accountant) do your taxes. I can pretty much guarantee you'll save money. Also just so you know the best way to usually deduct these expenses are based on milage which can be guestimated so its not like you have to keep receipts.
posted by bitdamaged at 2:11 PM on January 26, 2012
Nthing the get an accountant. If you're doing independent contracting have an accountant (or a very good tax professional who works for an accountant) do your taxes. I can pretty much guarantee you'll save money. Also just so you know the best way to usually deduct these expenses are based on milage which can be guestimated so its not like you have to keep receipts.
posted by bitdamaged at 2:11 PM on January 26, 2012
Response by poster: I know I'm responding to my own question, but in case others have this question later on...
I went to the TaxAlmanac website to do a little bit more research and came across this post discussing the "is it deductible or not" question that I had, which linked to this commuting flowchart that I found very helpful.
More digging will probably provide additional resources.
posted by lea724 at 2:15 PM on January 26, 2012
I went to the TaxAlmanac website to do a little bit more research and came across this post discussing the "is it deductible or not" question that I had, which linked to this commuting flowchart that I found very helpful.
More digging will probably provide additional resources.
posted by lea724 at 2:15 PM on January 26, 2012
Traveling directly from one job to another during the same work day is a deductible expense. Traveling from your home to a job (or from job to home) is not a deductible expense, this is considered commuting.
Here's a graphic from the IRS. Here's more detailed information.
posted by fryman at 6:52 PM on January 26, 2012
Here's a graphic from the IRS. Here's more detailed information.
posted by fryman at 6:52 PM on January 26, 2012
This thread is closed to new comments.
Consider this a datapoint, not authoritative.
posted by k5.user at 11:40 AM on January 26, 2012