Tax Terms You Need to Know-Continued
2) Tax Home Defined:
When the IRS says you must be away from home to deduct business-related travel expenses, they are referring to your so-called tax home. This may or may not be where you maintain your permanent residence.
Your tax home is your regular (fixed) place of business, employment, or post of duty, including the entire city or general area of your regular (fixed) place of business.
For travel expense purposes the IRS says:
- You must be away from your tax home, regardless of where you maintain your family residence.
- If you run your business out of your home, then your home, including the metropolitan area within which your home is located, is your tax home.
- If you operate your business outside of your residence, say at a retail store or office building, your store or office is your tax home.
- If your regular place of business is San Diego, California and you maintain your residence in Phoenix, Arizona, San Diego is your tax home even though your permanent residence is in Phoenix.
Your residence may be your tax home if...
- you see clients/customers/patients there regularly and exclusively, or
- you maintain a home office that qualifies as your principal place of business. This is possible if you satisfy the administrative and management test:
- Under the administrative and management rule, if you use your home office regularly and exclusively to perform administrative and management activities for your business (e.g., bookkeeping, appointment setting, follow-up calls to clients/customers, preparing financial reports) your home office will qualify as your principal place of business.
Travel Expenses: Tax Terms You Need to Know (Some Examples)