Tax Deductions: Working Away From Home

Deductible travel expenses are the ordinary and necessary expenses of traveling away from home for your business, job or profession. To qualify, the travel must be away from the  general area of your tax home for a period substantially longer than an ordinary day’s work, and require a period of rest or sleep.

What is your tax home?

Travel expenses must be away from your tax home to be deductible. So, what’s your tax home for this purpose? Your tax home is not necessarily what you consider to be your primary residence. It is the entire city or general area where your main place of work or business is located – regardless of where you maintain your family home.

For instance, suppose a family lives and has a home in Philadelphia, but the father takes a permanent job in Pittsburgh. The kids don’t want to leavetheir school and only have two years left, so they decide to wait two years before relocating. The father stays in a hotel or apartment in Pittsburgh during the week, and travels back to Philadelphia to be with the family on the weekends.

In this case, his tax home is now in Pittsburgh. Although the family home is still in Philadelphia, his main place of work is in Pittsburgh. His hotel bills or apartment rent, meals, and other expenses in the Pittsburgh area are not deductible. His travel expenses back and forth to Philadelphia are also not deductible.

Now suppose that his Pittsburgh employer agreed to pay his hotel bills or rent for two years in order to entice him to take the job. Those payments constitute taxable wages to the employee. They must be included on his W-2 and are subject to income and employment taxes.

You can only have one tax home at a time. If you regularly work in several different areas, your tax home will generally be the one at which you spend the most time. However, you can also consider the relative amount of business activity and financial return at each location in making the determination.

Temporary work assignments

In our example above, the taxpayer’s tax home changed from Philadelphia to Pittsburgh because the position was indefinite in duration. There was no fixed or expected end date of the position. What if he had signed on for a temporary consulting position, or his current employer had transferred him to Pittsburgh for a temporary assignment?

In these cases, the deductibility of travel expenses depend on how long he realistically expected to work in the Pittsburgh area.

• If he realistically expected to work in Pittsburgh for one year or less, then his travel expenses are deductible. If his employer paid or reimbursed those expenses under an accountable plan, those payments would not be included in his taxable income.
• If he realistically expected to work in Pittsburgh for more than one year, or could not realistically estimate the duration of the assignment, then the expenses are not deductible because his tax home changes to Pittsburgh as explained above.
• If he realistically expected to work in Pittsburgh for more than one year, but the assignment actually ended in less than a year, the travel expenses are still not deductible. The realistic expectation at the onset of the assignment is the determining factor.
• If he realistically expected to work in Pittsburgh for one year or less, then his travel expenses are deductible. If at some point the expectation changes to a duration over a year, travel expenses become nondeductible at the time the expectation changes. Expenses incurred prior to the change in expectation are deductible.

Travel for job hunting

Travel expenses away from home for job hunting are deductible if you’re looking for a new job in your current trade or business.

You can’t deduct travel expenses to look for a job in a new trade or business, or while looking for work for the first time.

What kinds of expenses are deductible?

If your travel qualifies as discussed above, you can deduct the following expenses:

• Travel by plane, train, bus or car between your home and your business destination.
• Business use of a car while at your destination. The personal use portion, if any, is not deductible.
• Taxi fares from the airport or train station to a hotel.
• 50% of the cost of meals. The 50% limitation applies even if it’s not a business entertainment expense.
• Lodging costs.
• Laundry and dry cleaning.
• Tips you pay for any of the above.
• Shipping charges for you baggage and sample or display material.
• Other similar ordinary and necessary business travel expenses.

Be sure to keep good records of your expenses.

You can choose to use IRS per diem amounts for lodging, meals and incidental expenses. These vary by location and will be explained in detail in a future post.

How to claim the deduction

Businesses which are paying qualified travel expenses (or reimbursing employee expenses under an accountable plan) will deduct the expenses as an “other deduction” on their business income tax return.

If you are an employee with unreimbursed travel expenses, you calculate the allowable amount of deduction on Form 2106 or 2106-EZ and carry it to Schedule A, Itemized Deductions. The deduction is subject to the 2% of AGI limitation. If you don’t itemize, you can’t take the deduction.

Self-employed taxpayers can deduct travel expenses on Schedule C or C-EZ (Form 1040). Farmers use Schedule F (Form 1040).