Does your business involve significant amounts of travel? If so, you face a small but important dilemma that most taxpayers don't have to deal with: how to determine your tax home. Not sure what a tax home is and what yours should be? Here is a short guide to help you out.
What Is a Tax Home?
For tax purposes, each taxpayer actually has two different applicable physical locations. The first is, of course, your primary residence. The primary residence is where you live the majority of your time. It is used to determine things like who can claim dependents, whether or not proceeds from a home sale are taxable, and which states you must file taxes for.
The second important location is your tax home. The tax home is where you do the majority of your income-earning work. For most taxpayers, this is very close to (or could be the same as) their primary residence. It is usually your regular office, your home office, or the store or restaurant where you work.
Why Is a Tax Home Important?
You may wonder why it matters where you earn income and live. The primary use of tax homes is to determine what travel and business expenses are deductible.
If your tax home is your office in Denver, for instance, you may be able to deduct travel expenses for a trip to Omaha. If, though, your tax home is actually in Omaha, you would likely not be able to deduct travel expenses for a trip to that city. Nor would you be able to deduct a weekend trip to your primary residence in Denver since this is not a work-related expense.
How Can You Decide On a Tax Home?
For taxpayers who have unique travel situations — such as roving salespersons, truck drivers, home health care workers, or even military families — finding the right tax home can be hard. Generally, you would first determine where you spend the most time doing your work. If this does not yield a clear winner, consider how much work is done in each location and how much money is earned in each.
If you truly don't have a single identifiable tax home, though, you may be 'itinerant'. Itinerant workers' tax homes are generally wherever they are currently working. In this case, you may find that none of your travel expenses are deductible.
Where Can You Get Help With a Tax Home?
Are you still confused about how to use a tax home on your tax forms? Learn more by consulting with an experienced tax service with expertise in your particular field or industry, like Ruben D. Rosas, Inc. Accounting & Tax Solutions. The more you understand tax homes and travel expenses, the better your bottom line will be.