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.]