The Internal Revenue Code (IRC) permits a U.S. Taxpayer to deduct “certain travel expenses” when traveling away from home on business. Taxpayers ought to keep close attention to a travel expense deduction and ensure that it accurately correlates with a Taxpayer’s tax home; as a travel expense deduction may attract the attention of the IRS.
What is a Taxpayer’s tax home?
- The regular place of business or post of duty, regardless of where a Taxpayer maintains his family home. It includes the entire city or general area in which a Taxpayer’s business or work is located.
- If a Taxpayer has more than one regular place of business, the tax home is his main place of business.
- If a Taxpayer does not have a regular or a main place of business because of the nature of his work, then the tax home may be the place where he regularly lives.
- If a Taxpayer does not have a regular or main place of business or post of duty and there is no place where he regularly lives, he is considered an itinerant (a transient) and his tax home is wherever he works. Itinerants are not permitted to claim a travel expense deduction because they are never considered to be traveling away from home.
What is a main place of business or work?
If a Taxpayer has more than one place of work, the following is considered when determining which one is the Taxpayer’s main place of business or work:
- The total time a Taxpayer ordinarily spends in each place.
- The level of a Taxpayer’s business activity in each place.
- Whether a Taxpayer’s income from each place is significant or insignificant.
A Taxpayer may have a tax home even without a regular or main place of work
A Taxpayer’s tax home may be the home where he regularly lives if he:
- performs part of his business in the area of his main home and use that home for lodging while doing business in the area.
- Has living expenses at his main home that he duplicates because his business requires him to be away from that home.
- hasn’t abandoned the area in which both his historical place of lodging and his claimed main home are located; he has a member or members of his family living at his main home; or he often uses that home for lodging.
What if the Taxpayer’s Tax Home is Different from the Family Home?
- If a Taxpayer and family do not live at the Taxpayer’s tax home, the Taxpayer can’t deduct the cost of traveling between the tax home and the family home and the Taxpayer can’t deduct the cost of meals and lodging while at the tax home.
- If a Taxpayer is working temporarily in the same city where he and his family lives, a Taxpayer may be considered as traveling away from home.
Work assignments can be temporary or indefinite
If a Taxpayer’s assignment or job away from his main place of work is temporary, his tax home doesn’t change. A Taxpayer is considered to be away from home for the whole period that she is away from her main place of work. Taxpayers may deduct travel expenses if they qualify for the deduction. A temporary assignment in a single location is one that lasts one year or less.
If a Taxpayer’s job assignment or job is indefinite, the location of the assignment or job becomes the new tax home and travel expenses can’t be deducted while there. An assignment or job in a single location is considered indefinite if it is expected to last for more than 1 year.
Don’t be a Victim of your Own Making
IRS may disallow a deduction for travel expenses in situations where a Taxpayer is engaged in an indefinite job assignment and is trying to claim a deduction. It is important that a Taxpayer understand the tax home concept when trying to proceed with travel expense deductions. Taxpayers ought to proceed with caution with the travel expense category. It is recognized to be an audit trigger for the IRS. Taxpayers ought to make sure that they can determine if a work assignment is definite or indefinite. Consult your tax specialist.