If you’re lucky enough to mix business with pleasure while you RV, think twice before you decide to deduct business expenses incurred while working from your RV.
“Deductions are a matter of legislative grace, and the taxpayer bears the burden of proving that he is entitled to any claimed deductions.” – United States Tax Court
In August, the IRS ruled against two independent insurance representatives from California who took their business on the road to sell vehicle insurance policies at RV rallies and events.
As the couple found out ten years after getting started, unqualified home/office deductions have drastic consequences if you push the limits on your 1040.
Starting in 2004, longtime RVers Dellward and Judith Jackson began advertising at RV events with banners and table displays to market their insurance business.
Leads were generated at these gatherings and afterward the couple would return to their sticks-and-bricks office to generate quotes.
At the next rally, the couple would return in their RV with all of the information they needed to close sales. Within four years the couple tripled their earnings.
Business Was Good
Over the next 10 years the Jacksons did exactly what many entrepreneurs do, look for as many ways as possible to write off business expenses and lower their self-employment tax liability.
Included in those expenses was the cost of the RV itself and expenses associated with taking the rig to events.
Unfortunately, because the couple used the RV for both pleasure and work (it wasn’t their primary residence), they came under the tax man’s scrutiny.
“We reject petitioners’ contentions that they attended RV rallies solely for business purposes from 2004 but instead find that they had mixed purposes.” – United States Tax Court
Then Came the Surprise
In August of 2014 an IRS ruling walloped the Jacksons with $50,000 in fines and back taxes owed, including penalties for 2006 and 2007.
Although the RVing couple did a stellar job keeping records of events, meetings, mileage logs and all the other minutia required to justify expense deductions, the court found many documentation discrepancies that disqualified the deductions.
The fine was also levied because the court declared that the Jacksons did not have a separate office space inside the RV and also used the rig for personal use for more than 14 days in a calendar year:
“Any personal use, including watching TV in the RV, makes the entire day a personal day. Petitioners therefore used the RV as a dwelling unit for personal purposes for more than 14 days, and section 280A prohibits them from taking any deductions with respect to the RV. – United States Tax Court”
This new court decision could have dramatic consequences for self-employed RVers who mix business and pleasure and who neglect to have a good tax preparer assist with their taxes.
Forbes has a layperson’s summary of the entire case. Read it, then contact a competent accounting professional if you take your work on the road.