Tax Rules for Piggyback Businesses!
No, this term has nothing to do with farms or state fairs. It refers to small business owners who carry their businesses on their backs. They work from Starbucks or mobile homes.
I couldn’t find any statistics on piggyback businesses, but I know a number of them. From a tax perspective, what does this mean?
Some piggybackers want to deduct the cost of operating from a mobile home. This has come under IRS scrutiny, and here are some of the results from the Tax Court:
- An insurance agent who sold policies at recreational vehicle (RV) rallies could not deduct his own RV expenses. While use of the RV has a substantial business purpose, the Tax Court said that they could not take a home office deduction because they used the RV for personal purposes for more than 14 days in the year. Any personal use, including watching TV in the RV, makes the entire day a personal day.
- A consultant who used his motor home for business was allowed to deduct interest on the loan to buy it as home mortgage interest. However, much of the claimed business expenses for travel in the home was disallowed for lack of substantiation.
- An orthopedic surgeon who used his motor home to facilitate his response to “stat” pages from hospital in which he worked, and to avoid the need to rent an office and pay for accommodations while on call, could not write off all that he claimed. He had argued that the Navigator was used as a “mobile office” 85% in one year and 100% in the next despite his mileage logs suggesting a much smaller percentage of business use. The court adopted the IRS’s percentages of business use (19.42% and 22.23% respectively).
Working outside of a home does not prevent a business owner from taking a home office deduction. As long as there is no other fixed location for the business and the home is used for substantial administrative or managerial activities of the business, it can qualify as the principal place of business and allow for a home office deduction. The space must be used regularly and exclusively for this purpose, and not occasionally, or also for personal reasons.
It’s up to the business owner to maintain records needed to support write-offs related to piggybacking activities, such as travel. Use apps on your smartphone or tablet to facilitate recordkeeping for tax purposes.
Bruce – Your Host at The Tax Nook
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