As we usher in the new year, I thought I’d answer some of the most frequently asked questions related to taxes and full-time RVing. Here are the top 10 tax questions for full-time RVers.
10 tax questions for full-time RVers
1. What’s the best tax savings strategy for full-time RVers?
First, there aren’t any special deductions or credits available as an RVer. However, if you are a business owner as well, then there are some great strategies available to you.
Don’t leave deductible business expenses on the table. This includes writing off cell phone and internet costs, mileage and possibly some travel expenses. Travel expenses can only be taken if they directly relate to your business and you have kept a good written or electronic log. This can include attending conferences or travel to meet with clients.
Also, remember that as a self-employed individual you can possibly deduct health insurance costs, health savings account contributions and even retirement contributions. To max out savings for your personal situation, I highly recommend meeting with a tax professional to go over your exact numbers and situation.
2. What are some common tax deductions for RV owners?
RV owners with a loan can take the interest as part of itemized deductions. The loan must be secured by the RV in order to do this. The other requirement is your RV must have sleeping, cooking and bathroom quarters.
For RV owners who also own a business, it’s important to track anything you buy which is used in the business. This can include a computer, software, internet, education, conferences and other items that are necessary for your business.
The other tax deduction I see often is for solar. If you add solar to your RV, there is a residential energy credit available. For 2019, it is 30% of the total costs of installation including equipment and labor. This does drop to 26% for 2020.
Additionally, RV owners with children may qualify for the child tax credit.
3. How many years can my RV business take a loss?
The IRS defines a business as being profitable three out of every five years. Consider if your business is profitable or losing money every year. While it is normal to have losses in the first couple of years in business but it’s not okay to continue to operate a business.
If you continue to show a loss after the first few years, you may be at risk of the IRS claiming your work a hobby. This means the IRS will disallow taking the loss as a deduction against other income.
4. What’s the best new tax law for full-time RV owners?
The best tax law which almost every RV entrepreneur should benefit from is the qualified business income deduction. This is a 20% deduction for all income derived from a pass-through entity. Remember, sole proprietorships, partnerships, and S-Corps are all pass-through entities.
This means that if you earn $50,000 in net business income on the road, you could qualify for a deduction of up to $10,000. That’s a pretty substantial saving for small business owners. This is the simplified version. There are lots of exceptions and complications to this deduction but it is worth learning about and taking on your tax return as a full-time RV owner.
5. Should I register an LLC? How do I know if it should be an S-Corp?
It’s important to know the different types of business entities, so you can understand the best structure for your business. It’s also important to know that an LLC is not a tax structure. The taxable business entities are sole proprietor, partnership, S corporation, and C corporation. Also, an LLC alone offers no tax benefits whatsoever. Instead, an LLC is treated as a sole proprietor unless elected otherwise.
The entity which offers the most tax savings is the S-Corp and I usually see savings to the taxpayer starting at about $50,000 of net business income. This can vary in each individual situation. If you think you could benefit, I highly recommend getting the opinion of a tax professional.
Keep in mind having an S-corp comes with more requirements and paperwork. However, the extra work may be very much worth the amount you’ll save on self-employment taxes. Talk with your tax professional to see if it’s the right move for you.
6. When do I owe quarterly taxes? How do I pay them?
Quarterly taxes are estimated tax payments paid 4 times throughout the year (April 15, June 15, September 15 and January 15 of the following year). These are payments that get applied to your federal self-employment and income taxes.
The IRS says you must either pay 100% of your income tax liability from last year or 90% of this year’s liability to avoid a penalty. If your tax liability is under $1,000, the IRS does not assess a penalty. The penalty is based on the underpayment of tax liability. It’s as simple as keeping up with your payments to avoid being assessed a penalty.
Should you need to make estimated payments, you can either mail in vouchers with a check or use the IRS website to pay online.
If you’re not sure if you need to be making estimated payments, I highly recommend talking with a tax professional.
7. Where should I register my business?
This is an important consideration and the answer I give most often is to register in the state in which you operate. This is typically your domicile state since that’s your legal address. I understand you may not always be in that state, but it is still the state from which you operate your business. I wrote a blog post on this very subject because there is lots of misinformation around it.
Don’t be fooled into registering in a tax-free state to avoid income tax. You always pay taxes according to where you live. In fact, registering in a state other than your domicile state could cause more hassles. You should always register where you live and avoid the hassle of having to register in multiple states unless you are physically doing business in multiple states.
No matter where you form the business I suggest having a registered agent to receive documents on your behalf. The cost of this can vary from $50 to over $200 annually. I recommend Northwest Registered Agents for this service but there are plenty of other options to choose from.
Need a registered agent service? Hire Northwest Registered Agent! They are easy to work with and get great reviews.
8. How do I keep track of my business expenses and income?
I always recommend opening up bank accounts once you have formed your business whether it’s an LLC or an S-Corp. This will help separate you from your business and you won’t be mixing funds. This means having separate checking, savings, credit card, and any other financial accounts.
Accounts in the name of the business help to establish business credit and also keep legal separation should that ever become an issue. (I’m not a lawyer, so talk with a business lawyer to confirm the legal separation.)
I also recommend keeping track of expenses with some sort of accounting software. There are lots of options available to fit every budget. Quickbooks, Freshbooks, Wave, and Xero are all great options. Using software allows you to keep track of income and expenses, helps you understand the financial health of your company, and also allows for easier tax time.
If you are just getting started or overwhelmed by bookkeeping software, then a simple spreadsheet might do the trick.
9. How do I handle sales tax if I only sell digital products or services?
This is a difficult topic and one where I highly recommend first understanding the tax rules of your home state. Each state handles sales tax in a unique way. Some states tax digital products while others do not. I did write a whole post about sales tax issues. Plus, the laws around this are changing quickly and it may be soon that digital products are taxed in every state and not simply where you operate.
Generally speaking, if you are selling online and your total sales to each state are less than $50,000 then there is no need to worry about collecting sales tax in other states. This means focus on sales tax in your state alone and collect it if necessary.
I will tell you that Texas which is a popular state for full-time RVers does have a service tax. This means if your business is based in Texas you need to know if your service is taxed and what the tax rate is. You’ll also need to register for a tax license.
Lastly, there are software services that will help you determine, collect and remit tax in whichever municipalities you sell. But, you guessed it. These software services come with a price and as a small business, these can dig into the bottom line. If you’re interested in learning more about these services here are some examples, TaxJar, TaxCloud, Taxify, Avalara and more. Costs for these services range from $9/month to $47/month and higher and depend on your monthly transactions.
The one good thing about these tax services is that many will integrate directly with your sales platform and accounting software including Amazon, eBay, Shopify, Stripe, WooCommerce, Xero, PayPal, Etsy, etc.
10. What about the home office deduction for full-time RVers?
This is usually a big no. The IRS defines a home office as a completely separate space from your living area. It must be used 100% for business purposes. How many people can say that about their RV?
I have seen a few exceptions if you have a toy hauler with office space in the garage or possibly a bunkhouse used as office space.
I urge you to think about this though. An RV is a small space and honestly, I’m not sure how much savings the home office deduction would even offer in such a tiny living space. Did you want to save up to $50 and risk an audit? You decide if it’s worth it or not.
BONUS UNRELATED TAX QUESTION I AM FREQUENTLY ASKED!
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Hopefully, the answers to these 10 common tax questions for full-time RVers will help you navigate your tax situation.
What question do you still have? Ask me below!
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