Why me? Now? Multi-state psychologist issue

[Margaret CPA in OH]

A long time client, self-employed psychologist, relocated from this state to another but continued to come back to this state twice monthly to counsel clients.  During COVID she also began telehealth sessions from new home state.  Her partner was doing the same and renting an office in this state for use while present.  My client paid half the rent to partner but chose not to claim expense as she did not want to 1099 partner.

Two years ago she rented an office in this state for sessions, claimed the expense so 1099.  I just got notified (when reminding clients that it is 1099 time) that she moved to another local community and, by the way, she and partner are leasing an efficiency apartment locally to stay when working in-state rather than staying with friends as before.  (That friend moved and no longer has room.)  They are both on the lease.  Client pays the rent and partner gives her half.  Client has done telehealth just once from the apartment but partner does it a lot from the apartment. 

This is hurting my brain.  Client does not do billing/office work from apartment but also has never claimed home office in now resident state.

Client has never tried to claim mileage from new state to this state as she always participated in church activities and many other social events with friends while providing counseling sessions in person for just a few hours.  I don't think that has changed - no additional in person sessions in this state, just a nicer, better place to stay overnight.

Ideas?  My inclination is to deny claim of rent in this state as she is here for just a short time but paying for full time facility, well, half of it.

Can I retire now?  And BOI, do I want to!

[Lee B]

 

Margaret, I must say that you have some of the most interesting client tax situations 

 

17 minutes ago, Margaret CPA in OH said:

 

. . . . .They are both on the lease.  Client pays the rent and partner gives her half.  Client has done telehealth just once from the apartment but partner does it a lot from the apartment. . . . . 

 

In your client's case I don't see a way to claim any business expense for the rent

[Margaret CPA in OH]

Thanks, Lee B, for the reply.  That's pretty much my position, too.  I may get flak but then I'll just retire   Or retire from her. 

Yes, I do seem to get them, don't I?  And I haven't touched on the new client with 7 rentals in 5 states with a 1031 exchange in 2022 that took me for a loop when I saw no depreciation in 2023.  Now I know why.  Then there is the Air BnB he bought in 2023 with $7000 in 'consumables' and sold in 2024.  Why, oh why, did I say yes to this guy?  Sigh, partner of recently deceased neighbor's son, so a sympathy gesture, I guess.  At least the data entry in my 2023 program results in the same bottom line so that's good.  And he is very well organized...unlike some others.  And according to his 2022 and 2023 invoices, he is accustomed to paying a fair amount of money.  So there's that!

[Max W]

Some people have all the luck!  

[mcb39]

Talk about luck!  I just had a client from 2019 come in with a CP11 asking for just short of 4K.  They aren't disallowing the exemption for the daughter who was in college, but they are disallowing the LLC and Tuition Credits because they say that the 8863 was incomplete or not attached to the return.  This client hasn't been back since that year but he wants me to fix it.  I pulled up his return and printed the forms that the IRS said that they never received.  That is all that I plan on doing.  He can pick up the printed returne and contact the IRS himself.  They wouldn't talk to me anyway.  This is from 5 years ago.  What are they doing in their spare time?  I have clients who still have not received their 22 and 23 returns.  I might jump ship with Margaret.

[Lee B]

1 hour ago, mcb39 said:

. . . . . . .  I have clients who still have not received their 22 and 23 returns. . . . . .

What do you mean ?

[DANRVAN]

On 1/4/2025 at 12:24 PM, Margaret CPA in OH said:

rent in this state as she is here for just a short time but paying for full time facility, well, half of it.

I am not clearly following your post Margaret.  Is your client renting an apartment which is used 100% for business while away from her tax home; or also using it for personal purposes?

[Margaret CPA in OH]

Client and partner have been traveling from TN to OH twice monthly since relocating to TN in about 2022.  They are both psychologists with personal counseling practices. Most of their counseling is via telehealth but they have some OH clients that they see personally when in OH from original practice.  I do not prepare the partner's returns so cannot speak to the handling of expenses there.

As they were long time residents of the area and my client attends church and sings in the choir and is a deacon, her visits to OH are both for business and personal purposes.  She has rented an office for in person counseling in OH but does only telehealth in TN where she also does her billing.  She wrote that she and partner decided to rent an efficiency apartment last September for overnight stays on those visits in OH.  I don't know if there are other stays when not meeting clients.  My client does NOT use the apartment for 100% business and has done telehealth from that location only once since September.  Partner does a lot from there, I think.  My client has not had to pay for overnight stays since relocating to TN until September as they were staying with a close friend at no cost.  Close friend moved in with sister so no more free stays.

I'm thinking that my client might be able to expense her share of the rent for those nights she stays in OH when meeting clients in person.  Her share is one half of the monthly lease payment.  She has never taken any kind of travel expense, meals or lodging but I think it appropriate to deduct something for overnight stays when she does do business here as it is too far to commute to TN.  Thoughts?

[jklcpa]

37 minutes ago, Margaret CPA in OH said:

I'm thinking that my client might be able to expense her share of the rent for those nights she stays in OH when meeting clients in person.  Her share is one half of the monthly lease payment.

In general, this would fall under the office-in-home rules, if she qualifies for that. Remember that in addition to being an area of exclusive use, it also has to be regularly used for the business, so that may knock her out for this deduction since your original post said it was rather sporadic or of limited use.  IF she did qualify for the OIH, this would be a further proration of her share of the net expenses after reimbursement from the other party: rent, renter's insurance, utilities, internet, telephone, etc. Considering all of that, again IF she qualifies, she may find that the business % of her share of the expenses doesn't amount to much tax savings or worth the hassle, but that is for you to discuss and advise.

[Margaret CPA in OH]

Thanks, Judy.  I think the client is not at all proposing or trying to claim the efficiency rental for OIH. She uses TN home for billing and virtually all of her telehealth consults.  It seems she is asking for herself - not her partner who is not my client - if she can claim any portion for overnight stays when doing business in OH in person.  She comes to OH twice monthly for the in person consults and for personal time, as well.  I would have to ask whether her primary purpose is for business.  Kinda doubt it but not sure as her consulting practice was well established before moving to TN. The telehealth portion took off during COVID but she maintained several clients to see in person wearing masks and continues to meet them.  In any event, an alternative would be for her to stay in a motel as it is certainly too far to commute from TN overnight.  She does rent office space in OH for the consults.  Should she buy a cot and sleep there? /s 

The calculated amount may be very small and not really worth it, as you mention, but not sure.  If it costs $1200, just a guess for calculations, per month and she pays half or $600, that would be $20 per night or $40 per month, not nothing for her small practice but more that when she stayed with a friend and less than a motel would cost.  FWIW, she has never claimed mileage or meals but does pay income tax on the related earnings to the municipality where her OH office is located.

Re costs: as a leased efficiency apartment, I would be surprised if there were additional charges for utilities, etc.  I suspect and will confirm that she only uses her telephone directly or as a hotspot.  I doubt there is renter's insurance either.  It might even be furnished.  Several unknowns so thanks for the prompts.  I find it an interesting thought exercise and realize that not every situation fits neatly into the IRS prescribed boxes.

[jklcpa]

Margaret, I'm sorry to have completely missed the point that you are asking about travel related expenses when being away from the main tax home. With the indefinite time of duration, I'd say this doesn't qualify to take those deductions for the OH expenses.

[mcb39]

16 hours ago, Lee B said:

What do you mean ?

Sorry, I meant to say "refunds".

[Margaret CPA in OH]

Again thanks, Judy.  With your reply, however, does that mean she also does not qualify to deduct the rental for the OH office used exclusively for in person consults?  That is also of indefinite duration but, to me, clearly valid even though the majority of her income is derived from telehealth in TN.  Again, somewhat facetiously, should she just buy a cot and sleep in that office when in OH?  What if she paid for a motel on those nights?  Is she expected to commute because her only physical in person counseling office is in another state and used only twice monthly?  She had to have a business license and registration in the OH municipality.

I've been trying without success to think of other similar self-employed folks or those that work indefinitely but regularly outside their tax home.  What do traveling nurses do, for example?  It's hard for me to believe my client's situation is so very unique but perhaps it is.  In which case, as in some others, I think so very unfair.  I guess she is expected to give up her business in OH, maybe.  Sigh... I hate to have to tell her.

[Lee B]

If she was traveling for business reasons only then your answer would be fairly easy, but your post makes it sound like she is mixing business and personal travel.

In which case the best result would be an allocation of expenses.

[PapaJoe]

One question I would ask is if she had no clients in Ohio, would she still travel there twice a month for church and social reasons? Also, how many days does she spend each trip?

[Margaret CPA in OH]

Lee B, I was inclined to allocate her share of the rent per diem only on the nights she was counseling clients either the day prior or the day after.  It is fair to say that she does mix business and personal time but I suspect there are very few business travelers that are 100% business, i.e., enjoying some television or some such when overnight is necessary because commuting is unreasonable given the distance.

PapaJoe, I suspect that if she had no clients in Ohio, she would still travel here but not likely twice monthly as that is her counseling schedule.  She certainly would not have a private office space for counseling or paying for an OH license or for the income tax now not earned in OH.  I believe that she still maintains activities in the church when in OH because she is here.  There are other deacons that live outside the area and serve electronically and services are now online so I doubt she would be here often - unless her partner continues practicing and comes as often.  All good questions I need to ask.

 

[Lion EA]

A cot in her office might negate the "exclusive & regular use" of an OIH.

Is her tax home in TN for telehealth, but in OH for in-person visits? If she has a tax home in OH, them travel expenses are not deductible.

You have lots of questions to ask. Read about OH's definitions for things like Domicile. Facts & circumstances.

[Margaret CPA in OH]

Lion, her tax home is TN but she has regularly, for a few years, also earned income and paid for office rent in OH when seeing clients in person.  The majority of her counseling is done via telehealth from TN.  Her billing, etc. is done in TN.  From QF, "(w)hen the taxpayer regularly works in more than one location, the tax home is the main place of business where most of the time, income or degree of business activity occurs. This is when there are two or more business locations as she has, in OH and TN.

Also in QF, 'No Main Place of Business' "Taxpayers who do not have a main place of business have a tax home that is the same as their main home if:

1) The taxpayer performs some work in the vicinity of his main residence, and the residence is used for lodging while doing business there.

2) The taxpayer incurs duplicate living expenses while on business travel.

3) The taxpayer:

  a) Has not abandoned the vicinity in which his historical place of lodging and main residence are located,

  b) Has family member currently residing at his main residence, or

  c) Frequently uses the  main residence for lodging.

Results:

* If three factors are met, the tax home is the same as the taxpayer's main home; away-from-home travel expenses are deductible.

* If only two factors are met, there is a possible tax home, to be determined by examination of the facts and circumstances.

* If only one or no factors are met, the taxpayer is a transient and travel expenses are not deductible.

In my opinion the facts and circumstances show that her tax home is TN and she meets all 3 factors of No Main Place of Business although she really does have a main place for telehealth and a main place for in person counseling.  She, like many self-employed folks I think do not work exclusively in a home office.  I know I actually go to several client locations and take a home office deduction.  A cot in her OH office would not invalidate her home office deduction which she does not, in fact, take. 

My head hurts.  I think she can deduct the allocable portion of the apartment rent in OH as she also deducts the rent paid for the office she uses for consulting.  She is away from her tax home.

 

[mcb39]

I had a client change his Domecile to Texas instead of Wisconsin because he is there much more than he is here.  Also, Texas does not have Income Tax and he travels to different states for construction.  Yet, his base right now is Texas, but he has rentals in Wisconsin and just recently aquired some in Texas.  I also advised him to find a tax preparer in Texas as it is getting too difficult to track his activities.  Nice guy and I hate to lose him but I believe that someone closer could do a better job for him.  Will see what he decides.

[DANRVAN]

1 hour ago, Margaret CPA in OH said:

twice monthly as that is her counseling schedule. 

If the trips are primarily for business then treat the rent as business travel as long as it is not lavish per sec 162(a)2.  Personal allocation depends on fact and circumstances.  For example if she spends 6 to 8 hours a day consulting then don't worry about personal time in the evenings. If on the other hand she spends 2 days consulting and a day of personal then the allocation is 2/3 for business.

If the trips are primarily for personal purpose then there is no deduction.

OIH is not a consideration in this case; taxpayer is renting an apartment for lodging instead of a motel as I see it.

 

1 hour ago, Margaret CPA in OH said:

allocate her share of the rent per diem only on the nights

I don't believe self employed taxpayers are allowed to use a per diem for lodging.

[mcb39]

Margaret, my client gets a W2 from a Texas Company.  He is actually an engineer.  However, they withhold state taxes for Colorado, Louisiana or wherever they send him.  Mostly now he works in Texas.  When I first met him, he was so far in the hole that you couldn't see the bottom.  I just told him how proud I am of what he has done with his life.  However, filing two or three NR forms as well as Wisconsin has just become too much of a burden.  Sometimes we have to step back and think of what is best for the client.  I do think that you are on the right track with your client.  Being self-employed is an entirely different ballgame.  

[DANRVAN]

1 hour ago, Lion EA said:

Is her tax home in TN for telehealth, but in OH for in-person visits?

Two tax homes?  I don't think that is possible.

[Lion EA]

If it's two businesses, it's possible. Margaret needs to ask lots of questions to understand her client's business model.

I don't see that all the questions about the itinerant life have to do with this client. She obviously has at least two places of business, one in TN where she does telehealth and one in OH where she sees clients in an office. Her question is if her personal rental in OH is a deduction due to being away from her office in TN. I think it rests upon if her only tax home is in TN so she's away when working (not visiting) in OH, or if her in-person biz is a separate biz in OH only, so an OH tax home for that biz.

[DANRVAN]

1 hour ago, Lion EA said:

If it's two businesses, it's possible.

I disagree.  As I understand it a taxpayer can only have one tax home regardless of the number of businesses.  But if you have a cite please share it.

Otherwise, I could have a tax home for business A in Seattle and in Miami for business B and deduct all travel between the two?

One business must be the principal business based on facts and circumstances.  If taxpayer has a separate business from principal business in a separate location away from tax home; travel expense is allowed.

1 hour ago, Lion EA said:

Margaret needs to ask lots of questions to understand her client's business model.

It is not that complicated, if she is travelling to Ohio primarily for business purposes then her expenses are deductible either in full or in part; whether reported on two Schedule C's or one.

[DANRVAN]

39 minutes ago, DANRVAN said:

It is not that complicated,

But she does need to keep adequate records and documentation to show the business purpose of her travel and expenses.