WCG CPAs & Advisors has more than 160 Certified Registered Nurse Anesthetists as 1099 contractors (aka business owners), and it is one of the fastest growing segments in our client base in 2024. As such, naturally we’ve had several discussions with CRNAs regarding their tax deductions.
Increased tax deductions is one of the primary reasons to ditch that W-2 job and convert to a 1099 contractor. Prior to the Tax Cuts and Jobs Act of 2017, W-2 employed CRNAs could deduct expenses, such as mileage and home office, associated with their work on Form 2106 (Employee Business Expenses) and eventually on Schedule A of their 1040 tax return. That is no more, but in 1099 land, all these wonderful business tax deductions are alive and well.
And yes, you might be a CRNA, but you are also a business owner when operating as a 1099 contractor. Let’s get some basic housekeeping matters out of the way before we dive into CRNA tax deductions.
Automobiles
There are two options here. Own the automobile in your business, or own it personally and get reimbursed by the mile. There are two end points to this spectrum. A frugal $40,000 automobile driven 15,000 miles a year is probably better suited to be owned personally. This is because of the tax arbitrage that exists in the mileage rate (62.5 cents for the 2022 tax year) since your automobile likely operates for less than the tax-free reimbursement.
A luxury $90,000 automobile driven 8,000 miles a year for your CRNA business is better suited to be owned by the business. It’s the $60,000 automobile that is driven 8,000 miles a year that can be a chin-scratcher. Should you own it personally or own it in the business? It might not matter either way.
We can help you decide which way to go. A few more pointers on automobiles:
- If you own the automobile personally and your S Corp is reimbursing you for the mileage, then all expenses must be paid by you, the person, and not the business. We see this messed up all the time. No biggie, just stop doing it.
- If you own the automobile in your business, you will deduct actual expenses such as gas, insurance, maintenance, etc. You cannot deduct mileage and deduct actual expenses. You must choose one or the other.
- It’s likely your CRNA business is an LLC taxed as an S Corp. Therefore, the tax deduction for mileage is done on the S Corp tax return. This is when the business reimburses you, the employee, for the business use of a personal automobile. In other words, there is not a mileage deduction available to an S Corp unless it is a reimbursement made to an employee (as a sidebar, an S Corp owner is both a shareholder and an employee).
We could go on and on like Journey’s Don’t Stop Believing, but we need to move along.
One more tidbit! Rental cars used while doing a temporary duty assignment away from your tax home is a common CRNA tax deduction.
Locums or Temporary Duty Assignments (TDY)
The IRS sums this up nicely in IRS Topic 511 Business Travel Expenses which comes from IRS Publication 463-
You’re traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.
Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals, or lodging in Milwaukee because that’s your tax home. Your travel on weekends to your family home in Chicago isn’t for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.
In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location.
You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can’t deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if you realistically expect that you’ll work there for more than one year, whether or not you actually work there that long. If you realistically expect to work at a temporary location for one year or less, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes.
If you take a locum CRNA position for three months in a lovely Colorado mountain town because the go-to CRNA is on maternity leave, your travel, lodging, and meals are all deductible. Yay! There are some other deductions too, but those are the big ones.
Your lodging is deductible, Yes, but what about an RV or a camper as you travel from town to town, state to state? WCG has several traveling medical personnel (and other business owners such as independent insurance adjusters chasing natural disasters) using an RV as their temporary housing. In these situations, we determine a business use percentage and have the business reimburse you accordingly.
What about groceries? Yes, meal-related groceries are typically deductible as a meals expense.
What about cleaning supplies, toilet paper, etc.? Yes, to a certain degree these are deductible. When you stay at a hotel, they are indirectly charging you for cleaning, cleaning supplies and other things within their cost structure through their nightly rate. Keep it reasonable. Keep it deductible.
Being an Itinerant
Keep in mind the IRS definition of itinerant (IRS Publication 463)
If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home.
If you are deemed an itinerant, then your travel, meals, and lodging expenses are no longer tax-deductible. Let’s break this down because it is a big deal. If you bounce from locum to locum, contract to contract, and do not return to a “home base” where you regularly live, then your tax home travels with you. If your tax home and your work place are the same, then travel is considered commuting, meals are considered personal and lodging is considered personal rent. In other words, not tax-deductible.
Another way to look at this- it is not about the contract’s location or the temporary nature of your contracts, it is all about maintaining a residence where you regularly live and also work (at least part or some of the time).
Scenario A- You have a home in Dallas. You take a contract in Minnesota for the summer, and then return to Dallas for several months. You accept a contract in Florida the following spring and another in Minnesota that summer. You later return to Dallas. This is a wonderful example of an acceptable temporary duty assignment, and meals, travel and lodging are likely to be tax deductible.
Scenario B- Same situation above, but you do not return to Dallas for 18 months. This one gets a bit tricky. Perhaps the first 12 months are deductible since you always intended to return, but the last 6 months are not. This scenario would need more discussion.
Scenario C- You live in Idaho along with your family. You take contracts in various metro areas (cities) throughout Oregon. You regularly return to your personal residence in Idaho, and magically your family is still there. Oregon would be considered your tax home since you cannot satisfy IRS Publication 463 tax home determination #1 (see below).
Scenario D- Using the RV from above, most of your immediate possessions including your dog travel with you from city to city, contract to contract. You rent out your home back in Dallas. You are likely to be deemed an itinerant.
Tax Home Determination
Questions revenue agents ask when determining residency and tax home (and sometimes referred to an abode).
- Where is your drivers license? Where is your car registered? Do you have a car?
- Where do you vote?
- Where are your possessions? In storage or in your residence?
- Do you rent your residency to anyone? Where is your family (with you or back home)?
- Where do you earn your income? Do you earn a substantial amount of income close to your residence?
- Do you have proof of living expenses such as meals, gas for your car, recreation and utilities showing your return to your residence (this one trips up people a lot)?
Here is another blurb from Publication 463:
Factors used to determine tax home. If you don’t have a regular or main place of business or work, use the following three factors to determine where your tax home is.
1. You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Most traveling CRNAs cannot meet this test.
How to read – you generally must earn as much in the metro area of your main home as you do in any other location. For example, home is Florida where you earn $125,000. You earn $80,000 in New Hampshire and another $56,000 in South Carolina on temporary contracts. This satisfies #1.
2. You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Read that again- “you have living expenses at your main home.” Most traveling CRNAs also cannot meet this test.
How to read – you must be able to show that you have grocery bills, utilities, recreation expenses, bar bills, dining and other “living life” expenses in all locations (your main home and your other geographical areas). If you only have these types of of expenses in your “locums” locations, you will not satisfy #2.
3. You haven’t abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.
How to read – you must show familial ties to your main home, either directly with your butt staying there or members of your family staying there. If you return only on occasion, and your family such as a spouse, travels with you, #3 is harder to meet. Having said this, #3 is certainly more squishy than the others.
If you satisfy all three factors, your tax home is the home where you regularly live. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you can’t deduct travel expenses.
WCG CPAs & Advisors follows the rules above. While your friend who travels all over the country for multiple years and deducts all their traveling, meals and lodging means three things- a) they might think they are deducting it but their tax pro quietly doesn’t allow it, b) their facts and circumstances are not like yours or c) their tax pro doesn’t know the basics. This isn’t a gray area. Publication 463 is quite clear. Please stop talking in the O.R. or logging a bunch of time on Facebook. The misinformation will drive you crazy.
Tax Court Cases
One of the best ways to illustrate the issue is a quick review of some Tax Court cases
Barrett v. Commissioner, Tax Court Memo 2017-195
Barret was a video producer in Las Vegas, Nevada (this is getting good already). His employer constructed offices in Washington, D.C., which required Barrett to travel to and from several times a year. His average stay in Washington was about two weeks.
Barrett claimed about $55,000 in travel expenses and the IRS challenged arguing that his tax home was in Washington and not Las Vegas. However, the Tax Court disagreed with the IRS because Barrett proved that he did substantial work for his employer in Las Vegas in addition to the work in Washington. As such, his tax home was considered Las Vegas and not Washington. Specifically, the court quoted Markey v. Commissioner (490 F.2d 1249, 1255)-
Determining the principal place of business includes review of the location where the taxpayer spends more of his time, engages in greater business activity, and derives a greater proportion of his income.
This allowed him to deduct his travel expenses including lodging and meals since he was not commuting to his tax home. A win for Barrett. But… he eventually lost since he could not substantiate his expenses. So while he was allowed to deduct associated expenses, his record keeping was shoddy. Shocking.
Bigdeli v. Commissioner, Tax Court Memo 2013-148
Another variant of the tax home issue for business income is the deduction of business expenses. We have yet another Tax Court case that is eerily similar to the Barrett case above. In this, case the taxpayer was an oral surgeon living in Pennsylvania who traveled 130 miles to New York where he worked at a dentist office.
His personal home was Pennsylvania and his tax home was New York. His $55,950 in travel expenses for the two years in question were disallowed because a) they were personal non-deductible commuting expenses and b) his work location and subsequent tax home did not meet the temporary work location rules.
What if Bigdeli had a home office where he performed administrative functions in addition to his primary work functions outside the home? No dice. See Tax Home article below.
Here’s one more, if you still doubt how this rule works:
Michael E. Brown, et al. v. Commissioner of Internal Revenue, No. 19-12653 (11th Cir. 2020)
The Tax Court sustained the disallowance of Brown’s deductions, finding that Pennsauken was his tax home at the time the travel expenses were incurred due to the following factors: His engagement with AFR was indefinite; he worked four days a week in Pennsauken; AFR was his only source of income during the time the travel expenses were incurred; and there was no evidence he had multiple clients at multiple locations. In addition, after the Tax Court concluded that his tax home was in Pennsauken, it found that the travel was primarily motivated by a desire to see his family, with no evidence that the travel had a business purpose.
Here is the full write-up from the Journal of Accountancy.
Type “tax home tax court cases” into Google, and you’ll nauseate yourself to sleep.
