Some great benefits of travel assignments are tax-free housing, travel reimbursem*nts, and possibly meal allowances. These benefits come with the job because as a traveler, you have an official “tax home”—the place you travel from.
The first thing to understand about a tax home is that it may not be the same thing as a permanent residence. A permanent residence is the town you consider home and periodically return to between assignments, staying with relatives or perhaps renting a new apartment each time you return. A tax home goes another step further: It's where you maintain a livable residence. This can be a house, apartment, or a rented room, but you need to keep evidence of the regular expenses you incur in maintaining the property or arrangement.
Confusion about the distinction between a tax home and a permanent residence often leads to these common mistakes:
- Claiming a relative's address (such as your parents' home) as a tax home—without any significant contribution to the dwelling's care and maintenance. And while sending money for utilities might be a good way to reimburse a relative who's forwarding your mail, the amount is too varied to serve as proof of a tax home. Unless you can provide evidence of a rental arrangement where funds are exchanged—and the person you pay claims the income on his tax return—this doesn't qualify as a tax home. If the IRS asked you for proof of your tax home, you'd have to produce such evidence as rental contracts, payment records, cancelled checks, and tax returns, or the IRS will deny any travel deductions you'd claimed on a return. And no, rental arrangements with a relative or friend at a token amount won't qualify. A good way to determine a fair rental value is by checking the local classified ads for similar offerings in your area.
- Completely renting your home or subletting your apartment. If you want to rent your home or apartment while you're away on assignment, make it a shared deal. Maintain a portion of the dwelling for yourself, storing your personal belongings and living there when off assignment. Otherwise, the residence is forfeited because another person is contractually occupying it.
These rules may be overwhelming for some travelers. A tax home can be worth up to $6,000 a year in tax savings, but the extra time and expenses to justify it may not be worth it. If you don't want to live your whole life around a tax deduction, you have alternatives. For example, many travelers have shed themselves of this burden and become what the IRS calls “itinerant” workers, whose tax home follows them wherever they go. Housing and travel reimbursem*nts are treated as taxable income and the meal deductions are forfeited, but they're free to live wherever they please.
Other factors are involved in a tax home, but these are the basic rules you need to understand. Just be aware that when you sign a permanent residence form from a travel company, the assumption will be that you understand tax laws. Travel companies aren't in the business of policing their employee's tax home, so traveler beware!
Don't try to claim a storage unit as proof of a residence. That reveals the lack of a residence more than anything else!
Source
Joseph Smith, EA, RRT, at http://www.traveltax.com. Send your questions for him to [emailprotected].
