By Janet Groene, F47166
As younger full-timers flood the campgrounds, many of them earning their living on the road, more and more people are entitled to take a full or partial tax deduction for their motorhomes. I’m not qualified to give tax advice, but I do suggest that motorhomers think about deductions if they’re making a living on the go. Before making any tax decisions, be sure to discuss the ideas with a professional tax adviser.
Is your motorhome part of your business, or perhaps the business itself? If it is both your home and vehicle while you follow a career as, say, a bookkeeper who works for temporary service agencies, then it’s probably no more deductible than the stationary house and car you left behind. On the other hand, your motorhome and the travel lifestyle may be essential elements in your work as an environmental researcher who follows bird migrations. Perhaps your motor coach is a nice accessory in your life as a seasonal campground manager, because you’re required to provide your own housing in Arizona in the winter and in Michigan during the summer.
Each case is different, but the basics are spelled out in Internal Revenue Code Section 183, which determines the difference between a hobby and a business. Basically, you have to prove that your RV-based business intends to make a profit. If your business makes a profit three out of five years, you’re on fairly solid ground to take this deduction. Otherwise, you may be asked by the IRS to answer a “facts and circumstances” test in which it is decided whether the motorhome is a hobby or a legitimate business expense.
The home office deduction is a large red flag for tax auditors. Also highly suspicious are deductions for mileage, travel, gifts, entertaining, and many other things that go into running a business involving a motorhome. When the RV is your home office, workshop, vehicle, hotel, laboratory, domicile, and/or showroom, you’ll have many different claims to substantiate.
Let’s say, for example, that you sell a small, exclusive brand of motorhome. Your personal coach is also your demonstrator, showroom, and business office. It’s available to the public during business hours. You offer test drives and sometimes, for the best prospects, you rustle up a steak dinner to serve in the coach. You carry all the insurance policies required for a business vehicle, and your commissions make up all or most of your yearly income. To the IRS, it’s pretty clear you’re a professional RV salesperson whose motorhome is an essential business expense. All expenses connected with it probably are deductible — except for, perhaps, a percentage for personal use.
But the scenario becomes more complicated when the RV-related business provides only part of your income, creates overhead against a loss, or a tiny profit. Say, for instance, you sell hand-crocheted tea cozies at crafts shows. Part of your motorhome serves as a workroom and warehouse, and the vehicle itself is essential to traveling the country and setting up at the shows. A tax expert will have to determine how much of the travel and motorhome expense is business-related.
There are as many case histories as there are full-timers. Family A may live in an RV because Dad’s job requires a move every few months (he’s an expert in power generator construction projects). It’s easier to live in a motorhome than to move from apartment to apartment. Unfortunately, that doesn’t impress the IRS. What counts toward the family’s deduction is that Mom publishes a newsletter about traveling with children. The upshot is a partial deduction for the RV and travel expenses.
Couple B, however, makes a living solely through photography, maintaining a large stock of travel shots, often using their cute kids as models and their campsite as a backdrop. They sell their photos via the Internet. The RV is their only office as well as their business vehicle. They get a full deduction for the RV expenses, as well as for the film, camera depreciation, props, marketing and promotion costs, and so on. In these cases, it helps that Family A and Couple B both make a profit.
Couple C is a composite, not a true case history, but a possible scenario. Retired on lavish pensions, the couple travels the country, eating in top steakhouses once or twice a week. They claim a big deduction for the motorhome, travel, and restaurants, because they regularly send proposals to publishers seeking a contract to write a book on the best American steak restaurants. Cheeky? Yes. Chancy? Definitely. Some taxpayers may get away with this for a short time, but the IRS has a long memory and, when claims are denied, miscreants must pay interest and penalties. My guess is that Couple C will have some explaining to do if a third year goes by without making some money on that book.
The following motorhome expenses may qualify for a business deduction:
- The portion of towed vehicle expenses that applies to your business. This can be done in two ways: by taking a standard deduction that the IRS allows per business mile, or by keeping track of all expenses and claiming the percentage of them that was for business use.
- Fuel, oil, tolls, and RV-related supplies.
- Repairs and maintenance.
- Business-related cell phone and mail forwarding expenses.
- Equipment necessary to your RV-related business, such as maintaining a demo product or motorhome.
- Memberships in clubs or associations that are business-related.
- Professional expenses including tools, computers, Internet service, business forms, postage, raw materials, and business machine repairs.
These expenses probably do not qualify a business for deduction:
- All personal expenses, such as gifts, phone calls, food, utilities, and personal insurance policies, including coverage for personal goods carried in the RV.
- Campground fees and memberships, unless they are a part of the business. (For example, you rate campgrounds or represent products that are sold to campground stores, in which case staying in campgrounds may be allowable as a business expense.)
- Sight-seeing, restaurants, and entertaining, unless you can prove a business connection.
- The portion of fuel, oil, and other vehicle and travel expenses that would be considered personal, such as a trip to Alaska, where you have no clients.
If you have your own business, you will file Schedule C, a business profit and loss form, in addition to the 1040 and any other tax forms that apply to you. Then you must decide whether to take the standard deduction on the 1040 tax form, as most taxpayers do, or to itemize personal deductions such as mortgage interest (check with your tax adviser), charitable contributions, interest payment on student loans, disaster losses, capital losses, and qualified medical and pharmaceutical expenses. A portion of your health insurance also is deductible if you are self-employed. Your tax preparer also will enter information on your contributions to any IRA or Keogh plans.
To substantiate your claim on Schedule C that the motorhome is a business expense, there is no substitute for a long and complete paper trail. Even if your tax return is never questioned by the IRS, your accountant will need these records to help decide which items are deductible in full, and what percentages to apply to items that can be claimed as partial deductions.
If there is any question that your full-timing occupation could appear to be more a hobby than a business, you’ll have to prove to the IRS that you made a realistic effort to make a profit. Keep receipts for advertising, booths at crafts fairs, and promotional expenses. Retain copies of business correspondence, including proposals and turn-downs, notes on telephone conversations with clients, programs for speaking engagements where you promoted your product, and schedules of sales appointments. If you used posters, videos, sales kits, or other sales tools, have them on hand to prove your professionalism.
If you think you can deduct some or all of your full-timer lifestyle, see a tax adviser immediately — even if you aren’t full-timing yet or have not established a business. The sooner you get expert advice and start keeping records, the better.
Whatever your profit or loss, expense or deductibility, full-timing can be a gold mine. Its treasures are yours every day; its memories can never be stolen from you. If you can turn this lifestyle into a way of making a living, it also may be a way to have your cake and eat it, too.
Games and books for travelers
Chronicle Books has published three new road games that any family would enjoy. The 52 Travel Activity Kit is a small cardboard suitcase crammed with markers, stencils, stickers, and a great book of activities for children ages 7 to 12. Rubberneckers is a playing card-size box of 68 cards for ages 8 and up. It’s a game of sharp-eye interaction and is barrels of fun. The most compact game, 52 Fun Things To Do In The Car, is a box of 52 cards describing 52 different road games that can be played by travelers of all ages. The items are priced from $6.95 to $14.95. They are sold in bookstores and online at www.chroniclebooks.com.
If you have room for only one guidebook, make it The Rough Guide To USA ($21.95, Rough Guides). This large volume (1,328 pages) covers the entire nation with reviews on favorite places to visit and eat. As you plot future travels, this book will steer you in the right directions. Add specific guides after you decide on a route.
If you are one of the many full-timers who head to Florida for fishing, boating, and other water sports, the 2002-2003 edition of the Florida Cruising Directory ($16, Waterways Etc.) is as important as your road map. It lists charts, places to launch, tide tables, waterfront restaurants, emergency phone numbers, and much more for the angler and boater. The guide can be found at bookstores, marinas, and marine stores throughout Florida. It also can be ordered through online booksellers or by visiting www.floridacruising.com.
If you’re a train enthusiast, you aren’t alone. An entire lifetime can be spent traveling in your motorhome to see railway museums and take historic train rides in the United States and Canada. They’re all listed, from the Abilene & Smoky Valley Railroad in Kansas to the Zoofari Express at the Milwaukee County Zoo, in the 2002 edition of Guide to Tourist Railroads and Museums ($16.95, Kalmbach Publishing Co.). Best of all, the book contains dozens of coupons that are good for discounts on attraction admissions, saving you far more than the cover price of this 512-page treasure. The book is available in bookstores, through online booksellers, or from the publisher’s online catalog at http://books.kalmbach.com.
Fibromyalgia could dim your full-timing years if you’re one of the millions of people who suffer from this musculoskeletal pain and fatigue disorder. The book Fibromyalgia and the MindBodySpirit Connection ($19.95, Parkview Publishing), by Dr. William Salt and Dr. Edwin Season, explores every aspect of the problem, explodes myths, and suggests ways to cope with this illness. It’s written by physicians who look at the entire person, not just the places on the body that hurt, and suggest a seven-step therapy plan. Order it at bookstores, from online booksellers, or by calling the publisher toll-free at (888) 599-6464.