It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.
T is for Tax Home.
You probably think of your tax home as where you live – and that may be the case for some taxpayers. For federal income tax purposes, however, the Internal Revenue Service (IRS) typically defines your tax home as “the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home.”
Main place of business
If you regularly work in more than one location, your tax home is the general area where your main place of business or work is located. When thinking about your main place of business, you’ll want to take into account the length of time you usually need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. But according to the IRS, the most important consideration is the length of time you spend at each location.
No main place of business or work from home
But what if you don’t have a regular or main place of business because of the nature of your job? Or what if you work from home? In those cases, your tax home may be the place where you regularly live.
The definition of your tax home is commonly used when dealing with travel, meals, and lodging expenses. While you can’t deduct personal expenses, you may be able to deduct travel expenses, which are the ordinary and necessary expenses of traveling away from home for business. You’re considered to be traveling away from home if your duties require you to be away from the general area of your tax home for a period that is substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.
While unreimbursed business expenses are no longer deductible on Schedule A, some travel expenses are still deductible. For example, if you’re self-employed, you can still deduct travel expenses on Schedule C (Form 1040 or 1040-SR), Profit or Loss From Business (Sole Proprietorship) (PDF).
Foreign homes (and foreign tax homes)
Your tax home is also important when looking at other tax benefits, like foreign-earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Even though those involve traveling further afield, the definition is still the same: your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is where you are permanently or indefinitely engaged to work as an employee or self-employed individual.
Residence or Domicile
That language can be confusing for some of us because of the attachment that we have to the word home. But for federal income tax purposes, your “tax home” may not be where you live. And, your tax home may not be the same as your residence or domicile for tax purposes. Those terms typically don’t involve your business. I like to say that your residence is where you intend to live, and your domicile is where you intend to die.
If you’re not sure what qualifies as your tax home, check with your tax professional.
You can find the rest of the series here:
- A is for ATIN
- B is for BEAT Regs
- C is for Cryptocurrency Reporting
- D is for De Minimis
- E is for Extended Due Dates
- F is for FTE
- G is for GILTI
- H is for Head of Household
- I is for Inflation
- J is for Jeopardy Assessment
- K is for Kiddie Tax
- L is for Legal Entity
- M is for Mark-to-Market Taxation
- N is for Nexus
- O is for Ordinary and Necessary
- P is for Personal Exemption
- Q is for Qualified Appraisal
- R is for Required Minimum Distributions
- S is for Sunset