When travel isn’t travel

guest commentary by David Potts

Tax law allows you to deduct the cost of travel while away from home conducting business. This seems simple enough. But as with many definitions in the Internal Revenue Code, its definition of home is probably different than your definition of home. So let’s be more specific.

In order to deduct travel expenses you must be “temporarily” away from your “tax” home while conducting business. Your tax home isn’t always where you live or where your heart is. Your tax home is your regular place of business and it includes the entire city or general area in which your business or work is located. Driving to Van Buren for the day is not travel.

Let’s consider an example of how this definition works. You live in Fort Smith with your family but your permanent job is in Fayetteville. Where is your tax home? Since your regular place of business, the place where your permanent job is located is in Fayetteville, your tax home is in Fayetteville. The drive between Fort Smith and Fayetteville is commuting, not traveling. Commuting to work is nondeductible.

Let’s contrast the above example to another person who lives in Fort Smith with his family but he is working on a project in Fayetteville that will only last six months. Since the work in Fayetteville is temporary the drive might now deductible. Same trip, different tax treatment. So when is travel deductible and when is it not?

We have already established that you have to be away from your tax home on a temporary basis. But what is meant by temporary?

On the short side, temporary means that you have to be away from home longer than an ordinary day’s work and long enough that you require sleep or rest to meet the demands of your work while away from home. That doesn’t necessarily mean more than 24 hours, but it has to be long enough to require rest.

On the long side temporary means less than one year.

Temporarily is a term that can result in interesting discussions. For example, the law specifically states if you are employed at a location for more than a year you are not temporarily away from home. But even that statement isn’t always simple. The courts have allowed travel deductions to individuals who worked at a location for more than a year when the nature of the employment changed during this time period. An example of this would be an where an individual was hired with the intent of the employment being 10 months but due to unforeseen circumstances the project was extended past a year. The expenses incurred during the first 10 months would be deductible since the work was expected to be temporary, but the expenses after the time the project period was extended to exceed a year would not. Therefore, the expectation or intent that the period of employment would be less than a year can impact whether the expenses are deductible travel expenses.

For you “thinkers” reading this commentary, you can’t work in a job expected to last more than a year then quit before you finish a full year so you can call your living expenses travel expenses. It has been tried before — unsuccessfully. Implicit in this discussion is that while you are at a temporary work location you are paying the expense of maintaining your “primary” residence.

Our discussion of travel expenses doesn’t include business transportation expenses while at home. If you drive you car for business around town, the cost of operating that car is deductible. It is just business transportation, not business travel. Travel expense is incurred away from home for business and includes meals, lodging, airline tickets, taxi fares, etc. For example you can deduct you dry cleaning while traveling, but not when you are at home.

To be deductible, the primary purpose of trip must be for business. So what happens if you take a business trip and take an extra day or two for non-business activities? Don’t deduct the cost of travel for expenses on the non-business days. The cost of the trip there and back is still 100% deductible. However, if the primary reason for a trip is personal and some business is conducted while on the trip, you can deduct the additional expense related to your business, but the cost of travel to and fro is not deductible. Again, it seems simple enough.

Although the rules as to whether travel expense is deductible for income taxes are simple, applying those rules to your particular fact situation isn’t. If you work in construction, the oil patch, drive, consult, work as a independent engineer or any other job where you have go to your work rather than just go to work, you might need to be familiar with the rules that govern whether travel is deductible.

One more thing. For travel expenses to be deductible they must be substantiated. Substantiation requires that you keep an account book, diary, log, statement of expenses, or other similar record that documents the amount of the expense; the time and place the expense was incurred; the business purpose at the expense; and the business relationship of the taxpayer to each expenditure. Without this documentation no deduction for the travel expense is allowed.

David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

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