Tax Home
Contents
Understanding Tax Home: Definition, Implications, and Considerations
A tax home holds significant importance in the realm of taxation, defining the geographical location where individuals primarily conduct their work activities. This article aims to unravel the concept of tax home, its implications on tax deductions, and its relevance in various scenarios, including foreign earned income and temporary work assignments.
Deciphering Tax Home
A taxpayer's tax home signifies the locality where they predominantly earn income, irrespective of their permanent residence. Unlike a permanent address, which serves as a mailing location, the tax home dictates deductible travel expenses for individuals.
Key Takeaways:
- Geographical Significance: Tax home denotes the area where an individual earns the majority of their income.
- Tax Deduction Impact: The location of one's tax home influences the tax treatment of business-related travel expenses.
- Determining Factors: Time spent, work conducted, and earnings amassed in each location contribute to defining a taxpayer's main place of work.
Implications for Business Travel
The Internal Revenue Service (IRS) deems an employee to be traveling away from home if their business responsibilities necessitate an absence from their tax home exceeding an ordinary workday. Consequently, travel, meal, and lodging expenses incurred within the tax home locale are generally non-deductible.
Working in Multiple Locations
Professionals operating in diverse locations, such as freelancers or healthcare workers, designate their tax home based on the primary site of business activity. For itinerant workers without a fixed workplace, such as outside salespersons, travel expenses may not be deductible.
U.S. Citizens and Foreign Earned Income
U.S. citizens must establish their tax homes in a foreign country to qualify for certain tax benefits like foreign earned income exclusion. However, maintaining an abode in the U.S. during off periods may affect eligibility for foreign tax benefits.
Temporary vs. Indefinite Work Assignments
Temporary work assignments outside one's U.S. tax home enable deduction of travel expenses, albeit without qualifying for foreign earned income exclusion. Conversely, indefinite assignments establish the assignment location as the tax home, potentially enabling foreign earned income exclusion eligibility.