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’re unsure as to whether you are an employee or a self-employed contractor, we advise that you review your crew contract or consult with your accountant.
The more common travel-related expenses include:
- Airline tickets
- Rental cars
- Temporary crew housing
- Taxis and mass transit
Some of these expenses are deductible and some aren’t. Generally speaking, travel expenses are only deductible when self-employed crew 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 taxpayer’s business is located. If there’s more than one regular place of business, the tax home is the main place of business — or the tax home may be the place where the taxpayer regularly lives.
Taxpayers who don’t 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’re a crewmember and normally live with your parents rent-free when not on the yacht, your travel expense might not be deductible because your tax home becomes the yacht. And since you aren’t traveling away from your tax home, your expenses aren’t considered deductible. If, however, you’re maintaining a home along with the expenses of maintaining that home, the duplicative housing or travel expenses might be deductible.
If you’re a crewmember that doesn’t maintain a home while traveling, consider formalizing the living arrangement with your friends or family. This might include paying rent and signing a lease, which may establish the necessary paper trail that supports your claim of incurring duplicative living expenses. As a result, you may be able to deduct travel expenses while away from home.
The tax home doesn’t change when taxpayers are on a temporary assignment or their job is away from their main place of work. However, if the taxpayer is indefinitely assigned to a location other than the main workplace, the location of the assignment becomes the new tax home. In that case, taxpayers cannot deduct travel expenses between their main residence and workplace. 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’s temporary unless there are facts and circumstances that indicate otherwise.
This article originally ran in the September 2021 issue of Dockwalk.
For more finance content:
How Dual Citizenship Affects U.S. Taxes