Home Isn’t Always Where the Heart Is

Generally travel expenses for business purposes are tax deductible. Generally. “Generally your tax home is your regular place of business or post of duty, regardless of where you maintain your family home,” according the IRS Publication 463 Travel, Entertainment, Gift, and Care Expenses,

By definition, travel expenses are incurred when you are working away from home. However, the way you think of home and the way tax authorities think of home are sometimes different.

When I use the word home I think about Fort Smith, Arkansas. I grew up in Fort Smith, went to twelve years of school here, went to church here, etc. I visualize my house where my wife and I raised our son and created years of memories. In my particular case, my personal definition of home is the same as the tax law’s definition. Each day I get up and go to work at my office seven miles away. When I leave the city limits of Fort Smith to conduct business, it is easy to determine which expenses are deductible travel expenses. Some people don’t have occupations that allow such a clear definition of home for tax purposes. These individuals have to determine the location of their tax home.

For income tax purposes, your tax home isn’t about where a person’s residence is located. It is more about where you make your money, where you do business. Your tax home is geographical by nature, the area you work. People who earn their keep in different locations can run into trouble by assuming their tax home is where their spouse and kids live.

So what occupations are people involved in that might be affected by the tax law’s definition of home? Some of the occupations or business activities that the tax court has had to deal with the issue of a person’s tax home include consultants, people who work overseas, truck drivers, project managers in the construction trade, welders, and the list goes on. If you are or become mobile in your work or business activities, where your tax home is could be important.

How do you determine where your tax home is? It depends. It depends on the facts and circumstances of your situation. There isn’t a checklist that when completed answers the question definitively. But here are the factors the IRS tells you to consider.

If you have more than one place of work, the IRS tells you to consider the following in order to decide which place is you tax home:

  • The total time you ordinarily spend in each place.
  • The level of your business activity in each place.
  • Whether your income from each place is significant or insignificant.

It is possible under income tax law to hold a job and be homeless. The IRS defines this as itinerate rather than homeless, but if you are defined as an itinerate worker, then you have no tax home and none of your travel expense can be deducted because you are never away from home.

Here are the factors the IRS will consider to determine if you are tax homeless (itinerate).

  • You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.
  • You have living expenses at your main home that you duplicate because your business requires you to be away from that home.
  • You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or your often use that home for lodging.

Publication 463 says that if you satisfy all three of the above factors, you tax home is where you live. If you meet two of the three factors, it’s up in the air. You may or may not have a tax home. But if you only satisfy one factor, you’re out of luck. You are itinerate and cannot deduct any travel expenses.

Then you have the question of whether your work location is temporary or indefinite. A temporary location is a location where you work for less than a year. You cannot deduct travel expenses to and from a temporary work location. However, if the work assignment is indefinite, it becomes your tax home.

I really don’t expect you to become an expert on what the tax law considers your tax home by reading this post. However, I do want to illustrate with this post that the determination of you tax home can be complex. I will take a deeper look at travel and what requirements tax law and the IRS impose on taxpayers in order for travel expenses to be deductible. In the meantime, if this issue is important to you and you need answers now, call our office and as to talk with one of our CPAs or download IRS Publication 463 from IRS.gov. [As of January 21, 2015 the IRS Publication 463 is for the one published to assist tax payer in preparing their 2013 income tax year. The rules regarding to the definition of your tax home hasn’t changed, but if you are concerned, I’m sure an updated publication will be posted soon by the IRS.]



Qualified Tax Deductions for Today’s Unemployed Job Seeker

Qualified tax deductions for the expense of job searching

Certain deductions can help you offset the expense of job searching while unemployed.

According to the United States Department of Labor, the unemployment rate has reached a record low of 5.9% as of September 2014 compared to each consecutive year since the beginning of the recession in 2008. The decrease sounds great as far as percentages, but that still leaves 9.3 million jobless individuals, of which 7.1 million are actively seeking full-time employment. This number includes part-time workers who were unable to find a full-time position and college graduates who have not been able to begin their careers.

Searching for employment can be a tedious process that has the potential to become financially costly, and adding such expenses to an already strained budget is not something anyone would want to do. The good thing is you may be able to deduct some of the expenses you accrue while on your journey. In Publication 529 for Miscellaneous Itemized Deductions, the IRS provides the job seeker with a list of qualified and nonqualified items, such as:

  • Same Occupation: Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
  • Resume Costs: You can deduct the cost of preparing and mailing your resume.
  • Travel Expenses: If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency: You can deduct some job placement agency fees you pay to look for a job.
  • First Job: You can’t deduct job search expenses if you’re looking for a job for the first time.

We would all much more prefer to have a Congress that actually does some work and makes decisions that would help stimulate the economy instead of vacationing, but in the meantime the job seeker can take advantage of these qualified deductions.

For more information, contact Potts & Company. We can help you with the details of your situation!



Section 179 Election to Expense Assets is Back

All year long we kept reminding our clients and friends that the Section 179 deduction, the income tax election to expense certain assets rather than to depreciate their cost over several years, was limited to $139,000 for 2012. That was the law in 2012 and this limit was less than the generous 2011 limit of $500,000.

iStock_000017832299XSmallOn January 2, 2012, the American Taxpayer Relief Act of 2012 was passed that included a provision to retroactively raise the 2012 limit back to $500,000. Since it changed the limit available in 2012 on January 2, 2013, most businesses were unable to take advantage of the higher limit in their 2012 tax planning efforts. That’s the bad news.

The good news is the provision that expired on December 31, 2011 was extended for 2012 and 2013. So, a quick summary of the Section 179 rules for 2013 is as follows.