Blog

Intro to Travel Nurse tax rules such as tax-free stipends

I’m not an accountant, and this is NOT tax advice, and you should double-check all this with an accountant! With the Travel nursing boom going on and my wife having many travel nurse friends, I get some travel nurse taxation questions.

TL;DR – To get tax-free stipends legitimately (it’s the IRS, not your employer, that matters here!), you need to maintain a ‘tax home’ while you travel, like an apartment you still pay the rent on (without renting it out!) or a home you own and pay the expenses on while you’re gone. You must also ‘duplicate expenses’ such as rent another place at your travel work location, like an apartment or hotel. The IRS assumes you’ll eat and drink, so no need to keep proof of that. All your per diems for the tax-free stipends must come as reimbursements for expense reports you submit to your employer with this key information:

  • The business purpose of the trip
  • The date and place of the trip
  • Receipts for any actuals for lodging (if not getting it per diem as a stipend)
  • The employee must file the expense report with the employer within a reasonable period of time (60 days). If any of these requirements are not met, the payment is taxable to the employee.

You can read more about this in IRS Publication 463, or consult your accountant.

Resources on tax rules for travelers and some key points

I’m only going to address the issue of tax-free stipends (aka ‘per diems’, the IRS kind, not the nurse shift kind!) for nurses who maintain and pay for another residence while temporarily on travel assignment. Other’s can read this site’s handy advice:

Per this:

For true “travelers” as defined above, the tax rules allow an exception to the tax home definition. Instead of looking at the primary place of income/business, it allows the tax home to default (fall back on) the permanent residence. For this to apply however, the travel nurse must meet 2 out of 3 of the following criteria.

1. Does the individual have significant income at home?

2. Does the individual has substantial expenses maintaining their primary residence that are duplicated when on assignment

3. Has the individual abandoned their historical place of lodging and work?

Since most traveler’s do NOT meet criteria one, they need to qualify for tax-free stipends by meeting BOTH criteria 2 and 3. So, if you own your home-away-from-work and pay all the expenses, or pay market rents there, you should be good. Don’t try to cheat by claiming your parent’s home where you don’t pay market rent, or your friend’s house where you crash a fews times and pay some grocery bills. This will NOT count as meeting criteria #2! There’s a lot of bad advice that goes around with people trying to fudge this one.

The other key thing is that to get the housing tax-free stipend, ‘“you need to sleep or rest to meet the demands of your work while away from home.” It does not set a specific distance.’ Thus, there’s no ’50 mile rule’ in the IRS’s eyes even if that’s a common threshold used by many staffing agencies. You must also actually incur expenses for housing!

It is against the rules to take the housing stipend if you do not actually pay for housing. For example, if you have family or friends who live in the assignment’s area and you stay at their home for free, then you do not qualify for the housing stipend.

Bluepipes.com

If you meet these criteria, you should be eligible for housing and meals and incidentals (M&IE) reimbursements on a per diem basis. You must submit and keep your expense reports to your employer for these per diem reimbursements, and keep your expense report copies, your traveler’s contract that spells out your compensation, and any travel lodging (lease/hotel receipts) in case you ever get audited!

For meals (M&IE), the IRS doesn’t appear to require proof that you actually ate or drank while traveling (they just assume you must, as a biological being.) That said, it never ever hurts to keep additional info for tax purposes, so consider keeping receipts anyway, even if it’s just electronic credit card statements.

For lodging, you apparently just need proof that you spent SOMETHING, but it’s totally ok if you spent less than the per diem amounts for M&IE as well as lodging while traveling. For most people, you’ll probably need to rent an apartment for the entire assignment. But if you do only pay for, say, hotels while you’re working, you likely cannot get reimbursed tax-free for the days you’re back at home in the IRS’s eyes, since you don’t have any travel housing expenses then.

Again, if it’s reasonable for you to just rent a monthly apartment, then even if you return home you still have duplicate expenses and it’s fine to accept the full housing stipend for the entire time.

The only person you should EVER hire as a financial advisor is a fee-only Registered Investment Advisor. Here’s why.

The financial services industry is rife with conflicts of interest. The standard MO for companies such as Edward Jones/Ameriprise/Raymond James/your bank/insurance companies is to hire salespeople (aka ‘brokers’), give them trustworthy-sounding titles like ‘Financial Advisor’ or ‘Wealth Management Advisor’*, and then pay them commissions to sell people expensive investment and insurance products while calling the process ‘financial planning’.

Anyone can call themselves an ‘advisor’

A ‘financial advisor’ has NO legal meaning at all. It’s the financial equivalent of saying food has ‘all natural‘ ingredients. It means NOTHING!

Fees, fees, and more fees

Not only will your advisor put you in expensive products, they might add financial insult to injury by charging you 1% or more of your entire investment each year just to do what a simple Target Date retirement fund will do better for cheap. Do the math: if you have $500,000 invested with your advisor charging you 1%, you’re paying them $5,000 every single year, and that fee is going to increase as the market increases, so it’ll just keep going up over time. Is this really worth it for you?

Percentage-based AUM advisors even have the audacity to take the money quietly out of your account automatically without calling attention to the expense, making sure you’re paying big dollars without ever feeling the loss. (Until you compare your investment balance with what it COULD have been if you avoided all those fees for all those years, which most people never do.)

These tricks infuriate me because they are dishonest, deceptive, terrible for the clients, and yet all perfectly legally. Clients don’t even realize they’re being taken advantage of. Upwards of 25% or more of your wealth can get siphoned away over the years from typical sneaky fees.

Extra advisor + mutual fund fees of 1.5% eat up 29% of your wealth during 35 years of investing! That adds up to $230,000 in today’s dollars lost for someone who starts with $10,000 at 30 and saves $6,000 per year in the stock market until 65.

You might be wondering, “why doesn’t anyone stop these practices?” The SEC rarely steps in to protect consumers against anything other than outright fraud thanks to the tremendous lobbying and political power of the Wall Street firms that get rich ripping off Americans every year.

Every year Wall Street steals at least half of all US economic growth

One study from Forbes— not exactly a Socialist rag– estimated that the out-sized profits from Wall Street cut US GDP growth by 2% per year, meaning the growth of our economy is being cut in half, or even by 2/3s, because of how large our financial industry is compared to what it is in other modern nations like Britain.

What should you do?

Cut through the BS by avoiding ANY financial salesperson by asking if they are a fee-only Registered Investment Advisor. To my knowledge, this is the ONLY designation that means the financial advisor in question is legally obligated to be a fiduciary.* ‘Fee-only’ means they do not take commissions from selling financial products. This is essential so that they can give you objective advice.

So, how do you know someone is an Investment Advisor? Easy. FINRA, the body that governs brokers and investment advisors, runs BrokerCheck, a site that lets you punch in a name– or a firm’s name– and find out whether that person is a Broker or an Investment Advisor. (Or is practicing illegally if they’re not in there at all!)

For example, here’s my individual page, which clearly states that I’m an Investment Advisor– a fiduciary, who MUST put your interests ahead of theirsnot a Broker– a salesperson, who does NOT have to put your interests ahead of theirs or their firms. You’ll have to dig deeper by simply asking your advisor if they are fee-only. So do that after you’ve confirmed they are an Investment Advisor, and get the answer in writing! (I am, of course, fee-only. Reach out if you need excellent and comprehensive financial advice at a fair price.)

Yep, my middle name is Lynn.

*The Certified Financial Planner (CFP) certification is NOT enough if the person is merely a broker with a CFP, and not a RIA, because the CFP board is NOT the government, and therefore its requirements for CFP’s to be fiduciaries are, in my opinion, without any teeth.

The top 5 places to invest your cash right now

Where should you put your next investable dollar?  This is often the key question I answer for clients, and clarifying this for yourself will do wonders for your financial situation. Here’s where I think most people should put their money in order of priority.  Generally you should max out the first item on the list before going down to the others, but your situation could vary, so make your own assessment or get help from a competent advisor.

Courtesy of Reddit (via the film Idiocracy)

Assumptions

1) You have some cash to put towards these things.  If you don’t, you need to start here so that you can fix and automate your spending, then save some money to free up cash to invest or pay down debt.

2) You are not endangering your health, have proper levels of insurance, and aren’t making yourself miserable by living like a total pauper because you’re following my wealth-building suggestions to the extreme.

3) You’ll tailor this order to your own personal situation.  That said, I strongly recommend following items 1 & 2 in that exact order.

Where you should be putting your money

Okay, ready?  Numero Uno for where your money should go is….

1) Employer 401k matching

If you’ve read my articles on retirement, you’ve heard me say this before: don’t leave free money on the table!  What type of return do you  historically get from a risk-free investment?  Treasury bonds return about 1-2% as of writing.  What is your employer match return?  If you get matching of 50 cents on the dollar up to 6% of your salary, your return on that first 6% saved is an instantaneous, huge, risk-free 50%!!! There’s no better investment in the world that I’m aware of.  Max this out no matter what!

2) High-interest debt, like a credit card

Some readers might quibble with this as #2. I can hear them now: “What!? Paying off your credit card balance is always the first thing you should do!”  There may be emotional benefits to making this #1 that you should consider, but  if your employer matching is 50% instantly, and your credit card rate is 25% annually, you’ll do way better to first max out your 401k matching.  After that, put the rest of your cash towards that VISA balance.

Other readers might take the opposite tack: “I’ve saved for X instead, why should I ‘lose’ that money paying off my debt?” Paying off high-interest debt is the best investment you can make. Where else can you get a guaranteed return of double-digit interest? You can’t! You should do this immediately even if it means depleting a cash cushion such as an emergency fund, having to build back up a house downpayment (you’re not ready to buy if you have credit card debt!), or postponing some other purchase. You can always put things back on your credit cards if you must.

3) Emergency fund (a couple months’ living expenses + your auto and health insurance deductibles)

You need to have some money socked away for unforeseen expenses or losses of income.  A short-term stash of cash to tide you over if you lose a job, get sick, or have to replace something valuable, like a car, is invaluable for financial stability.  The general rule for insurance is to insure things which you wouldn’t be able to replace relatively quickly and that would cause you hardship if you had to go without them.  This includes your home, life, health, and your car or jewelry, depending on the retail value of these items and your personal savings.  (Make sure to avoid useless insurance.)

Expenses you can afford should be ‘self-insured’ by your emergency fund or other savings.  Raising insurance deductibles and banking the difference in premiums is a good way to self-insure against small losses ranging from a few hundred to a few thousand dollars.  Store emergency money for unexpected car repairs, insurance deductibles (which can be large if you have catastrophic, HSA-eligible health insurance), or high vet bills for your disgustingly-cute Cavalier King Charles spaniel.

Whether you need more or less living expenses saved depends on how steady your income is & how many liquid assets you already have (like non-retirement stocks that you could tap.)  The more financially secure you already are, the less of an emergency fund you need: a self-employed person with few liquid assets needs more emergency funds than a union schoolteacher with 20 years seniority and a sizable investment account.

Like all short-term (less than 3-5 year) savings, your emergency fund should be investing in cash or a short-term bond fund.  High-interest savings accounts like the kind from Capital One 360 are great for very short-term savings since the principal is guaranteed by the FDIC. Bond funds, which may vary slightly in principle but generally yield a higher return than savings accounts, work better for money that might sit there longer than a year.

For those with incomes low enough to be able to contribute to a Roth IRA, I strongly recommend dumping your emergency fund into a Roth IRA and investing in cash to kill two birds with one stone: simultaneously taking advantage of tax-advantaged retirement savings but also giving yourself the ability to withdraw the contributions (but NOT the earnings) at any time with no penalties or taxes. I describe this tip in more detail here.

4) Tax-advantaged retirement accounts (401ks, Roth or Traditional IRAs)

After you’ve maxed out your employer retirement matching, paid off your high-interest debts, and stored money for emergencies, it’s time to go back to saving for your retirement because of the huge tax advantages offered. In rough numbers, if you’re making less than $100 K as a couple or $50 K as an individual (i.e.: likely in the 12% tax bracket for 2021), max out your Roth IRA and/or Roth 401k at work. If you make more than that/are in the 22% or higher income brackets, I would max our your regular 401k first, then switch to maxing out your Roth IRA next if your income is low enough to qualify (your tax software will tell you this at the end of the year. You can still contribute for last year up until your tax filing date.)

If you make too much to contribute to a Roth IRA, use the backdoor Roth IRA [article coming soon] method IF you either have no Traditional IRAs with pre-tax money in them or can put all your Traditional/Rollover IRA money into your 401k plan to avoid paying taxes on it.

If you don’t have a retirement plan at work, use the appropriate IRA (Roth or Traditional) instead. If you’re self-employed, open an Individual 401k.

Read this to know what investment option to choose.

After maxing out your 401k and Roth IRA/backdoor Roth, if you also have HSA-eligible health insurance, max out your HSA as well. If you make enough to be in the 22% tax bracket or above, put the HSA ahead of your Roth IRA in terms of priority.

Putting money into a tax-free retirement vehicle is critical to building up a nest egg for the future.  Assuming you’re in the 24% tax bracket, an investment in a tax-advantaged retirement account made when you’re 25 will be worth about 50% MORE in real dollars when you’re 65 than would an equivalent investment in a taxable account.

To complete step 4, if you’re under 50, in 2021 you’ll be investing $20,500 in 2021 in your 401k if you’re under 50, $6,000 in your Roth IRA, and $3,200 in your HSA if you have single coverage, or $7,200 if your family is covered by your HSA insurance for the entire tax year in question (generally speaking.)

That’s around $30 K in annual savings, which is rarefied territory for more Americans, but very doable for anyone making at least $75 K or more as an individual, or couples making more than $150 K. You just gotta save more.

5) ‘Regular’ taxable investment accounts & short-term savings for big purchases

After you’ve maxed out your retirement options, it’s time to open a plain ol’ taxable investment account for long-term savings. I like to think of these as early retirement accounts; the more you sock away now, the quicker you can exit the rat race.

You should also be saving regularly for big purchases like a house, wedding, vacation or new car.  For these shorter-term items, use the banking system I recommend and create a savings account for each major purchase, and label it accordingly.

You might rank a short-term savings goal as higher priority than maxing out your retirement accounts. For example, maybe you want to buy a house and can’t save up the downpayment while maxing out all your tax-advantaged sources.  That’s fine, but do NOT neglect your retirement.  Investing early, even with just a little bit of money, is the most important factor to building wealth.  Saving for retirement will be way easier if you start today with whatever you can.

Now go do it!

Take each step one at a time until you’ve finished it, then move on to the next one.  If you’re maxing out steps 1 – 4 and contributing something in step 5, you’re doing very well and on your way to financial independence.

Now that you know where to put your money, find out WHAT to invest it in here.

How to cut your grocery bill in half and save $1,000s

After the main four things I do to build wealth rapidly, and after cutting my cable/internet and cell phone bills down to the bone, AND after taking 15 minutes to optimize my auto insurance, groceries are the next place I save big compared to my peers. Yes, grocery shopping doesn’t sounds like a sexy way to save money– although if you slim down doing it, maybe it does…?–, but it’s very effective, potentially saving you thousands per year.

The way my wife and I shop for food can be boiled down (get it?) to seven rules of thumb. Feel free to implement any of them, since all will help you get your food bills under control.

Pick the right grocery stores

Before we get into the rules, one of the most important things is to shop at the right places for the right things. Costco is an excellent all-around choice for everything, so if you wanted to simplify your life and do all your shopping at one store, embrace the public boon that is the Costco corporation.

If you live in a city or otherwise have access to a small vegetable mart (usually run by and frequented by immigrants), that’s a great bet for cheap produce. For staples like milk, meat, dairy, eggs, and canned or dried foods, shop the sale prices at chain supermarkets like Kroger or Safeway/Von’s. (Look at the weekly advertisements they mail to you for the deals ahead of time.) Asian supermarkets are great for produce as well as Asian staples like rice, coconut milk, soy sauce, etc. (Costco also has great deals on rice and soy sauce.)

Seven rules to slash your food bill

  1. Buy in-season fruits and veggies for $1/lb or less on average. If you’re really pinching pennies, stretch them by eating them raw, or only small portions of them cooked. The idea here is to maximize flavorful and healthy calories per dollar, and (non-grain/bean) veggies provide very few calories for the money, so you need to counterintuitively treat them as luxury items. Set yourself a veggie budget of around $20/week and you should be good. (That’s still 20 lbs of produce if you can stick to the rule!)
  2. Use vegetable/Canola oil for your cooking fat and salad dressing oil of choice, and more expensive oils like olive oil in smaller amounts for flavoring. Save and cook with meat fats that render out of your food (e.g.: delicious bacon grease. Great for frying greens or potatoes in, or even using in place of shortening in pancakes.) Vegetable oil is basically the cheapest per calorie thing you can eat, and fat is good for you, including saturated fat, so go crazy on it. If you have a source of free fat, like beef or pork fat that a butcher will just give you, render your own tallow or lard and freeze it for long-term use.
  3. Buy cheaper meats on sale. Make pork and chicken your go-to meat and get them at $1 – $2/lb. Get beef on sale ($3-4/lb ideally.) Eat fish & lamb sparingly. Get chicken with the bone-in and skin-on, and pork with the bone-in. These cuts are much cheaper, especially for chicken, but also tastier due to the presence of extra fat and the flavor from the bone. Plus, you can boil the bones to make much better broth than you can buy in the store.
  4. Make cheap carbs the bedrock of your meals, and buy them dried at $1/lb or less. (Note for Atkins/keto folks: if you’re trying to lose weight, sub the carbs for extra vegetable/animal fats instead, and up your vegetable budget as needed to soak up those fats.) Choose carbs that you like to eat like rice or wheat-based products like pasta and then buy them in bulk or when they go on sale since they’ll keep a long time. Rice is a great combo of taste, goes-with-anything, and ease of prep: just stick it in a rice cooker, add water, and set it. For the price, white wheat flour is the cheapest thing I’ve seen at ~30 cents a pound at Costco. White rice can be had at Costco for $1 to 50 cents a pound. Pasta can be found on sale for 80 cents to $1 per pound, as can rolled oats if you like oatmeal. Potatoes and bread are significantly more per calorie than rice, dried pasta, or wheat flour. Potatoes need to be around 20 cents per pound to be cost competitive, and pre-made bread need to be about $1 per loaf to match $1/pound prices for dried grains.
  5. Get full-fat versions of all dairy products, including milk, yogurt, and cheeses, and stock up when they’re on sale. Going full-fat is healthier, and will also cut your cost per dairy calorie by 30 – 50% because you pay the same price for more food, since the fat is now included instead of stolen from you in a flavor-robbing crime against humanity.
  6. When food that keeps is on sale, load up! When meats or canned/dried goods go on sale, my wife and I load up our cupboards and freezers. I once bought 50 lbs of dried beans because they were on closeout for 50 cents a pound, and we routinely buy 10 or 20 lbs at a time of, say, chicken thighs, when they dip below $1/lb. If you eat cold cereal for breakfast, wait for sales or shop generic brands to buy boxes at $2/lb or less. Besides keeping the price per pound of all our staples low, this habit means we always have something to cook at home. Thaw frozen things out on the counter overnight, or under hot water– in a sealed package– if you forget to thaw in advance.
  7. Treat yourself sparingly with more expensive items like chocolate, booze, pre-made baked goods, or pricier cuts of steak or fish. Use the savings you get from the core staples of your cooking to finance the fun stuff.

If you follow these rules, you can easily keep your per person grocery spending to $200 a month, and still eat like a king: healthy food, fresh fruit and veggies, meat or dairy at every meal, and great tasting ingredients. For a couple, that means a monthly grocery budget of $500 or less. For a family of four, $800 – $1,000 or less. That’s assuming you’re eating nearly all of your meals at home. Families that eat out more frequently can spend even less on groceries, although of course they’ll spend more on food overall.

Read on if you want to get even nerdier details on how to save money on groceries, including more recommended price points for various items.

Ward’s Better Tomorrow Food Filosophy

The simple idea in each of the above rules is to center your diet around foods that cost the least per calorie, and are also tasty, healthy, and not-too-difficult to turn into meals. Because I’m a huge financial nerd, I’ve already cataloged a lot of foods by cost per calorie for you here, including notes on where to get them (again, Costco often has the best prices.)

Shop Smart

Shop Smart. Shop S-mart.

The more generalized rules for smart grocery shopping are:

  1. Shop by price per calorie/pound/unit, favoring cheap ingredients over expensive ones for the bulk of your meals.
  2. Use the weekly ads that you get from supermarket chains to know what’s on sale where (and to build a mental list of best prices), and plan your shopping accordingly. Or, just shop at Costco for everything, and use Costco’s monthly flyers to get even deeper discounts on their sales.
  3. Know what a good deal is by keeping a mental– or physical– list of the best prices that things go on sale for (e.g.: $1/lb for chicken or pork, $1/dozen eggs, $2.50/lb butter, $0.50/pound for flour, $1/lb for pasta, etc), and know what stores to look in for what things.
  4. Load up like crazy when things are on sale at or below these best prices, especially if they’re not perishable or can be frozen. If you have the space, a used chest freezer is handy for really loading up on meats.

Americans spend about half their food budgets on eating out, and the other half on eating in. I suspect wealthier folks– most of you reading– skew even higher on the eating out spending, so let me say at the outset that the best way for most people to save money in general, and on food in particular, is to eat more meals at home.

food-prices_fig10_450px

Once you’ve committed to doing that, or if you already eat a lot of meals at home, the next logical question is how much should you be spending on groceries, and how to save on them?

Know what to have on your everyday shopping list, and what price to buy it at

Load up when things are on sale, only buying below certain $s/pound or $s/unit rules

Get most of your food calories from things below $1 per meal (per 750 calories)

Veggies: Load up on cheap, in-season produce at local veggie marts, or Asian/Hispanic supermarkets, and cook them in fat or oil to boost cheap calories

Limit spending on things that either cost a lot more per calorie, or else aren’t good sources of calories for the money. The cheapest way to fill up is through fat, grains, and starchy vegetables like potatoes. There is a reason these are the staples of every single population, especially of the poor. Green, really any non-starchy, vegetables at most US supermarket prices might be/feel healthy, but buying them in excess won’t fill you up, and thus won’t help your food budget.

Meat: eat mostly skin-on, bone-in chicken and pork for $1 – $2/pound

For meats, the clear winners in terms of cost-effectiveness are bone-in, skin-on chicken and also pork (usually bone-in too.) At large supermarket chains in my city you can routinely find skin-on bone-in chicken thighs, leg quarters, or whole chickens for $1 a pound on sale (sometimes even $0.80), and even at full price it’s usually under $2/pound.

Delicious pork shoulder roasts, great for tacos, boiled dinners, or even St Louis steaks, can be had rarely for $1/lb, and often for $2/lb or less.

Even in the US where beef is relatively inexpensive, it usually costs at least 2-3x more than chicken or pork, and often much more if you’re going for higher-quality beef. Hamburger at $2/lb is a good deal, as are beef roasts for $3/lb. Occasionally Costco has T-bones or other steaks for ~$6/lb if you wanna splurge. St Patrick’s day brings cheap corned beef ($2.50/lb after the holiday) and often $3, or $4/lb, brisket that you can corn yourself if you’re so inclined.

Lamb and fish are even more expensive per calorie than beef. Shrimp and shellfish even more so. Beef, and especially lamb, are also terrible for the environment, if you wanted an extra incentive to cut back on those (sadly) delicious red meats.

Dairy & eggs – Look for weekly sales and load up, freeze butter and cheese when it’s on deep discount

Certain perishables that people use everyday like milk are hard to stock up on, but you can save a few bucks here and there by glancing at the weekly store ads you get in your mailbox. Sour cream, cottage cheese, cream, half and half and other fairly perishable dairy products should be bought like milk. (Sour cream unopened in the coldest part of your fridge, generally the back, will keep a long time.)

Eggs, however, keep for weeks or longer in your fridge, so load up when they go on sale. In Washington State, when a major pandemic is NOT in progress, large eggs can be had for $1/dozen on sale, or at least $1.50 – $2/dozen. At Costco here they’re always about $2/dozen.

For good quality cheddar or similar non-fancy pants cheeses, sales on 2 pound blocks can get you $3/lb, and you rarely should have to spend more than $4/pound. Darigold and Tillamook are excellent brands frequently on sale in the northwest.

Butter is usually $4 or $5 per pound, but in certain times of year and often during baking season (i.e: November) it’ll go on sale for a deep discount close to $2 or $2.50. Buy several pounds then and freeze it until you need it, ideally wrapper in gallon ziplocks to protect the flavor for longer storage. Buying unsalted butter gives you more cooking and baking flexibility since you can always add salt.

One of my two favorite financial bloggers, Mr. Money Mustache, has similar recommendations here.

So go out there and save big on your next grocery outing! And if you haven’t already, check out your local Costco. You’ll probably be an evangelizing convert like me for them once you go a few times.