By Tom Andrews, CPA
Prior to 2018 unreimbursed business related travel expenses might have been a tax deduction for both employees and self employed yacht crewmembers. Under current tax law only “self employed” crewmembers may deduct travel related expenses against their business income. If you are unsure as to whether you are an “employee” or a “self employed contractor” we advise you review your crew contract or consult with your accountant.
The more common travel related expenses include but are not limited to the following, airline tickets, hotels, meals, rental cars, temporary crew housing, taxis and mass transit. Some of these expenses are deductible and some of these expenses are not deductible.
Generally speaking travel expenses are only deductible when “self employed” crewmembers travel away from their “tax home” to conduct trade or business. The “tax home” is an individual’s regular place of business, regardless of where the taxpayers business is located. If there is more than one regular place of business, the tax home is the main place of business, the tax home may be the place where the taxpayer regularly lives.
Taxpayers who do not have a regular place of business and who maintain no fixed home are considered itinerants. Their tax home is wherever they work. Thus, they cannot deduct travel expenses away from home. For example if you are a crewmember and normally live with your parents rent free when not traveling on the yacht, your travel expense might not be deductible because your tax home becomes the yacht and since you are not traveling away from your “tax home” your expenses are not considered deductible. If however you are maintaining a home along with the expenses of maintaining that home the duplicative housing or travel expenses you incur might be deductible.
If you are a crewmember that does not maintain a home while traveling you may want to consider formalizing the living arrangement with your friends or family, this might include paying rent and signing a lease, this may establish the necessary paper trail that supports your claim that you are incurring duplicative living expenses thus allowing you to deduct the travel expenses you incur while away from your home.
The “tax home” does not change when taxpayers are on a temporary assignment or job away from their main place of work. However, if the taxpayer is indefinitely assigned to a location other than the main work place, the location of the assignment becomes the new tax home. Then, taxpayers cannot deduct travel expenses between their main residence and work place. Taxpayers in this situation must include any amounts received from their client for living expenses in income. This rule applies even if the amount is called a travel allowance and the contractor accounts to the client for it. Whether an assignment is temporary or indefinite must be determined when the work begins. If the taxpayer reasonably expects an assignment or job to last for one year or less it is temporary unless there are facts and circumstances that indicate otherwise.