What is a Tax Home? Why Do I Need One?
If your business location is the place where you work all the time, the concept of "tax home" has little meaning. But if you travel as part of your business, or if you work in different locations, the location of your tax home does become an important concept.
In order to deduct business travel expenses, you must be able to show where you are traveling from; that's your tax home. The expenses for travel back and forth from your tax home are deductible expenses. (Remember that commuting expenses, that is, expenses for driving from your home to your business location, are not deductible.)
Before you deduct travel expenses, you must:
- Determine where your tax home is located, or, in some cases, if you have a tax home
- Then you must determine that your business travel involves being away from your tax home
Only if these two conditions are met can you deduct away-from-home travel expenses.
What is a Tax Home?
The IRS says that your tax home is your "regular place of business" and it has nothing to do with your family home. Your tax home includes the entire city or general area in which your business or work is located.
If your home is in the Chicago area and you work in that general area, coming home every night, Chicago is your tax home. You are commuting back and forth to home, so your driving expenses are not deductible.
If your home is in Chicago but you work in Milwaukee, coming home on weekends and staying in a hotel during the week, Milwaukee is your tax home. You can't deduct your expenses in Milwaukee because that's your tax home, and you can't deduct travel back and forth to Chicago because that's commuting.
More Information about Tax Home
Main place of business
If you have more than one regular place of business, your tax home is your main place of business. To determine your main place of business, consider:
- The total time you ordinarily spend in each place
- The level of your business activity in each place
No main place of business
You may not have a regular or main place of business because of the nature of your work. In this case, your tax home may be the place where you regularly live.
If you don't have a regular or main place of business and you have no place where you regularly live, you are considered an itinerant or transient. In this case, your tax home is wherever you work. As an itinerant, you can't claim travel expense deductions because you don't have a home to travel away from.
IRS Publication 463 - Travel, Entertainment, Gift, and Car Expenses has some detailed examples of each of these tax home situations.
Working From Home and Tax Home
If you work from home, your tax home is your family home and your tax home. There are special rules for deducting expenses for business travel to and from your home business.
Traveling Away from Home
When you determine your tax home, you can then deduct expenses for traveling away from home for business purposes (not commuting). The IRS says you are considered to be "traveling away from home" if:
- Your duties require you to be away from the general area of your tax home "substantially longer than an ordinary day's work," and
- You need to sleep or rest to meet the demands of your work while away from home.
The IRS notes that this doesn't mean taking a nap in your car, but it says, "You don't have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest." An example of this would be a truck driver or railroad conductor who leaves home in the morning, travels to another location with a layover, during which time he or she eats and sleeps, then returns to the tax home at the end of the trip.
Temporary Assignments, Days Off
The IRS distinguishes between temporary assignments and indefinite assignments. A temporary assignment is for one year or less, in most cases. Your tax home doesn't change during a temporary assignment, but it does change for an indefinite assignment.
If you go home on your days off from a temporary assignment, you are not considered away from home while you are in your hometown, so you can't deduct meals and entertainment expenses while at home, but you can deduct the cost of your hotel room back to the location of your assignments while you are home,
For both of these circumstances, IRS Publication 463 has more details.
Foreign Country as Tax Home
If you can prove that your tax home is outside the U.S., you may be able to claim a foreign earned income exclusion. The granting of this exclusion depends on whether your assignment is temporary or indefinite.
Deducting Business Travel Expenses
Once you have determined that your business travel from your tax home qualifies for tax deductions, you can deduct business travel expense to reduce your business taxes.
Not Sure About Your Tax Home? Talk to Your Tax Professional
This article gives some general information on the tax home concept, but it should not be used as tax or legal advice. Each situation is unique and the tax home concept is determined on a case-by-case basis. Talk to your tax advisor if you aren't sure which work location is your tax home.