I haven’t shared an email in a while, so here’s one I received recently that I thought offered some insight into the complexities of traveling therapist taxes.
Traveling Therapist: My wife and I traveled for a while but then had accepted permanent jobs, we are considering the traveling therapist life again and this brought up some questions in our minds. We are currently renting in Kansas, but when we go to travel again, we are trying to figure out what we need to do as far as claiming a tax home. I was originally living in my parents’ retirement house in Florida and was paying rent to them. My concern is that I might not have a place to claim as my tax home when we go back to traveling. Have you bought a house? What is the best way for us to claim a tax home?
HoboHealth: Oh man. Good questions, complicated questions, more complicated answers.
A while back, Kate and I bought a cheap condo up in Maine that we thought would be our tax home. We figured it would be an easy return on our money: 1. The market was way low, and we bought the place dirt-cheap 2. We were paying monthly storage fees that would be eliminated by moving our spare furniture into the condo 3. We’d have a nice, solid, unwavering permanent address as our tax home to collect all of our tax-free bene’s.
Unfortunately, at the same time we purchased the apartment, we had racked up a few years in a row returning to the same job in Colorado seasonally in the winter. Apparently, this is one overriding exception to the standard rules for maintaining a tax-home. If the majority of your work is done consistently in one place year-after-year, that becomes your tax home. The example I get from my tax guy is always pro sports players. If a player maintains his permanent home in Green Bay, but plays for the Texans, the majority of his work is consistently in Texas, and Texas is his tax home despite Green Bay being his permanent address. You see, Texas is his work place, that’s where he consistently makes his money, it doesn’t matter that he lives in Green Bay. This doesn’t apply to most travelers, because they move often enough to avoid establishing a consistent place of work. Confused yet?
The other thing that completely blindsided us was that Maine was taxing us at 4% income tax on everything we made, everywhere we worked – despite Colorado being our tax home, Maine considered us permanent residents by their law. We owed Maine over $5000 at the end of that first year with a condo there! Bush league, we got hosed. Just thought I would share my convoluted situation to demonstrate some of the complexities of the tax-home issue before actually answering your question.
So, to summarize your situation: You had a tax home established at your parents and were paying them “fair-market” rent to maintain a home there, but then went to live and work in a different state and have been renting a place there. You’re wondering how to establish a new tax home for when you return to traveling shortly. Has it been less than one year? …I’m thinking you may just be able to pay your parents back-rent for the year and file your 2015 taxes at their address, then you can just carry-on with the situation you had.
The other thing I have heard of, but not ever from anyone that I actually know first-hand, is purchasing super-cheap housing in a 0% income tax state like South Dakota or Florida and establishing that as your tax home. If only it were really this easy. My understanding is that there’s a lot of other factors that the IRS looks at to strengthen your claim for a tax home – driver’s license, vehicle registration, memberships (gyms, clubs, etc), bank location – the more things in your life you can put in one place, the better your argument for that place as your tax home. It is not black-and-white.
Now, let’s say you either re-establish your parent’s home as your tax home, or you somehow establish somewhere else as your tax home. Remember this mantra that has helped me keep my life more sane: You live at your tax home, you are only working temporarily at your travel destination. This is an important distinction. Some states want you to get a driver’s license in their state or register your vehicle there after living there 30 days or less – in your case, you are not living there, you are only working there temporarily. If you are pulled over, you should be clear with the officer that you are only in that location working for several months, you live at your tax home location. Clear?
Staffing agencies will try to make these issues very clear-cut. They’ll frequently give you a checklist for tax home and if you are able to check off a certain number of boxes, you are OK in their eyes to receive tax free money. They may tell you if you work 60 miles from your tax home, you are OK to collect tax free money. There are no laws related to travelers that are this precisely defined. The real laws are much more vague and open to interpretation. Do the best you can to strengthen your case of claiming any one particular place as a tax home so you can confidently defend when/if the IRS comes knocking. And when a recruiter assures you that your tax home is legit, remember that the end responsibility is YOURS and yours only.
Your best bet to get your taxes right is to talk to a tax professional who specializes in travelers. Searching for “travel RN taxes” on Google will give you a variety of options. Good luck trying to understand all this stuff, it’s complicated.