If your business or profession,(locum tenens) requires you to travel away from your tax home for more than an ordinary day’s work that you will need to sleep or rest there, then you may be able to deduct ordinary and necessary expenses relative to your travels away from your tax home. But what is this tax home?
Tax Home Definition. The IRS (Internal Revenue Service) defines tax home as the entire city or the general area where you do most of your business transactions, regardless of where you maintain your family home. So, if you live in Boston but you do your business in Seattle then the entire city of Seattle is your tax home.
If you have more than one place of work, then your main place of business is your tax home. To determine your main place of business, you must consider the following factors:
- Your time spent in each location.
- Your business activity in each location.
- Your generated income from each location.
Per IRS, the place where you spend most of your time is the most significant.
If you have no regular place of business, then your tax home may be the place where your regularly live if at least two (2) of the following factors are met:
- You perform part of your business in your home.
- You have duplicate living expenses as a result of doing business travels away from your home.
- You have not abandoned your main home; you have family living at your main home; or you often use that home for lodging.
If you don’t have a regular place of business and you don’t have a place where your regularly live, the IRS may consider you as an itinerant or transient. In this case, your tax home is wherever you work and therefore you cannot deduct travel expenses.
Temporary Assignment
Your profession or business may require you to be assigned to a different location for a certain period that your tax home may change depending on the circumstances.
If the assignment is temporary, meaning it is expected to last and does in fact last for a year or less, your tax home remains the same.
If the assignment is indefinite, expected to last for more than a year, then the new place of assignment becomes your new tax home. Therefore, travel-related expenses incurred in your temporary place of assignment are not qualified deductions. But you may be able to deduct as moving expense the cost of relocating to your new tax home. Note that the assignment being indefinite is based on the expectation that it will last for more than a year, whether it lasted as expected or not.
If your temporary assignment or job suddenly becomes indefinite due to changed circumstances, the treatment of travel expenses shall also change from the time the temporary assignment becomes indefinite.
It is important to have a clear understanding of tax home especially if you do frequent travels or have multiple business locations since tax home determines if you can claim travel expenses. We recommend consulting with a professional to ensure compliance with tax laws and deduction claims.
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