As April 15 approaches, locum tenens providers across the country—minus those who have already filed—are likely combing through their records in search of tax-deductible expenses. If you used your own vehicle for any locum tenens opportunities last year, don’t overlook the potential savings of mileage and vehicle deductions.
To summarize what is allowable, we spoke with Joseph Smith, EA, Enrolled Agent, founder of TravelTax and an adjunct instructor of taxation in Norfolk, Nebraska. Smith’s practice specializes in tax preparation for mobile healthcare professionals, including locum tenens providers.
According to Smith, the Internal Revenue Service has increased its scrutiny in this area, so it is important to maintain accurate documentation and to understand the “who, what, why, when, and where” of transportation deductions.
Who can deduct?
Not all staffing firms cover transportation expenses in a separate, tax-free reimbursement. You can deduct certain vehicle and mileage expenses when they are unreimbursed, or when the reimbursement is reported as income, explains Smith. In those cases, the deduction offsets the gross amount, which will reduce the tax and reflect the net income after expenses.
What is the procedure?
According to Smith, there are two approaches for deducting vehicle-related expenses: the standard mileage allowance and the actual expense method. The latter is much more involved, he says, because all expenses associated with the use of the vehicle must be documented by receipts and a mileage log in order to determine the business use percentage.
The standard mileage allowance is much simpler, Smith explains, because you need only to keep track of your business miles. At the end of year, multiply the business miles incurred by the standard rate, which is currently 57 cents per mile (February 2015).
Why choose one method over another?
To determine which method serves you best, look ahead a few years, urges Smith. Although the actual expense method may create more deductions at the front end of ownership, it can result in a lower deduction on the back end, following, say, a drop in business or sale of the vehicle. Smith advises that you compare the two methods based on your own personal use.
When is mileage deductible?
Don’t erroneously assume all expenses associated with a vehicle used for business are deductible, cautions Smith. To derive the percentage of allowable expenses, you must compare the mileage incurred for business purposes with the total usage.
Where is mileage deductible?
Just because the car is driven for work doesn’t automatically make it a business trip in the eyes of the IRS, says Smith. For instance, if you receive income from an assignment that lasts more than a year, the vehicle expenses are not likely deductible. But mileage incurred traveling from one business location to a second or third, generally, is deductible.
For temporary engagements, you can deduct your mileage and expenses incurred in getting to a temporary job site, the local business miles to carry out the duties at a temporary site, and the trip home or to a new temporary assignment at the end of the engagement, according to Smith.
But trips made home during the course of a locum tenens engagement are, generally, considered personal by the IRS, he clarifies, unless they are associated with a specific business purpose. As a concession, you are allowed to deduct the expenses for trips home up to the amount that would otherwise be deductible if no trip had been taken.
In addition to the criteria listed above, transportation deductions can only be claimed if you are working away from your tax home, and you reduce the claimed expenses by any tax-free allowances provided by your staffing agency. With an understanding of the process, and the right documentation, transportation deductions can help to reduce your taxable income.
Any tax advice included in this communication may not contain a full description of all relevant facts or a complete analysis of all relevant tax issues or authorities. This communication is solely for the intended recipient’s benefit and may not be relied upon by any other person or entity.
