Your tax home determines whether you’re eligible to some or all of your travel-related expenses as a business expense. You’re considered to be traveling away from home and you may be permitted a deduction for ordinary and necessary travel expenses you incur on a trip if you must travel away from your tax home for substantially longer than a typical day’s work. You must sleep or rest at this location to meet the demands of this work. Costs incurred while traveling from where you live to your tax home generally aren’t deductible expenses because you’re not traveling away from your tax home. But you may be able to deduct some or all travel expenses incurred on your work trip to the area where your primary residence is located. This is deductible if your tax home and your primary residence are in different areas, and you’re temporarily working in the area where your primary residence is located. In this case, you’re traveling away from your tax home. While the IRS defines a taxpayer’s tax home as the “entire city or general area," it doesn’t provide a precise definition. However, the United States Tax Court has held in at least one case that it’s the entire area surrounding the taxpayer’s place of business from which they could reasonably be expected to commute to work. Still, not everyone necessarily has a tax home. The IRS may consider you an “itinerant” (transient) for tax purposes if you don’t have a main place of business or a place where you regularly live—maybe you simply travel from hotel to hotel for business purposes, and you never return to any one location when you’re not working. An itinerant doesn’t have a tax home and therefore can’t deduct travel expenses.
Example of a Tax Home
Your tax home would be Phoenix if you live with your family in Los Angeles on weekends, but regularly commute to Phoenix to work during the week. However, if you have clients all around the country and you fly to a different city every week, you would not have a regular place of business and your tax home would be Los Angeles.
How To Identify Your Tax Home
If you work in multiple locations and want to identify your tax home, you must determine which location is your main place of business or work. To do that, consider the following factors:
How much time you spend in each location for business purposesHow much business you do in each locationHow much money you made related to the time spent in each location
For example, you might own a business and have clients in both New York and Philadelphia that you regularly visit for business purposes. You would add up all the days during the year that you spent in each location for business in this case, as well as the amount of money you made from your New York and Philadelphia clients, respectively. If you spent more time in Philadelphia and made more money from your Philadelphia clients, Philadelphia is your tax home, regardless of where you live. You may have to go deeper with your analysis if the results are split, with you spending more days for business in New York but earning more money from clients in Philadelphia. If that’s the case, you may have to reconstruct how much of each day in each location was spent on business.
