For people whose business is in a location where they work regularly, the idea of a tax home has little meaning. However, for those who travel as part of their business, or work in different locations – the tax home becomes more important.
A tax home is defined as the general area of you main business, employment, or post of duty – regardless of where you maintain your family home. Your tax home is where you permanently work as an employee or self-employed individual. Having a tax home in a given location does not always mean that the given location is your residence for tax purposes.
What If You Don’t Have A Regular Place Of Business?
Often, due to the nature of work, your tax home may be the place where you live. If you have neither a permanent residence nor a place of business, you are considered an itinerant and you tax home is wherever you choose to work.
Defining An Abode & Living Outside Of The Country
First let us understand the meaning of “abode”:
Generally in reference to one’s home, habitation, residence, domicile, or place of dwelling. It does not mean your principle place of business. “Abode” maintains a domestic meaning rather than vocational and does not mean the same as tax home. The location of your “abode” depends on where you maintain your economic, family and personal ties.
For any period of time that you maintain an abode outside of the United States you are not considered to have a tax home. However, your abode is not necessarily in the United States while you are temporarily in the United States. Additionally, your abode is not necessarily in the United States merely because you maintain a dwelling in the United States – it does not matter if your spouse or dependents use the dwelling.
Deducting Your Business & Travel Expense Properly
In order for an accountant to help you with your deductible travel expenses, you will need to:
Show where you are traveling from – your tax home
Show your travel expenses to and from your tax home
Not all travel expenses are deductible, such as commuting
Before you deduct any of your travel expenses, it is important that you keep the following in mind
The location of your tax home – if applicable
Does your business travel keep you away from your tax home?
Both of the above conditions above must be met in order for you to deduct any travel expenses. From there you will have to pass the physical presence test.
Passing The Physical Presence
In order to qualify for an exemption that will take care of all or a portion of any income that you earned internationally, you’ll have to pass a special physical presence test, which the team at 212 Tax is happy to help you with.
In general, to meet the physical presence test, you must be physically present in a foreign country for a full 330 days in a 12-month period. It is not necessary for you to have been in a foreign country for only employment purposes – this does include vacation time as well.
What Constitutes Bona Fide Residence?
The bona fide residence test applies to US citizens and to any US resident alien who is a legal citizen or national of a country with which the US has an income tax treaty in effect.
Example Of A Bona Fide Residence
You could have your domicile in Cleveland, Ohio, and a bona fide residence in London if you intend to return eventually to Cleveland. The fact that you go to London does not automatically make London your bona fide residence. If you visit London as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in London. However, if you go to London to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you more than likely have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. You are clearly not a resident of London in the first instance (going as a tourist). However, in the second (going for an indefinite work assignment), you are a resident because your stay in London appears to be permanent.
Let 212 Tax & Accounting Services Help You With Setting Up Your Tax Home
212 Tax’s team of CPAs is here to help those who travel frequently for business, as we want to make sure you receive all appropriate deductions and file your taxes properly. We are located in Manhattan, New York, but we provide expert tax and accounting services to individuals and businesses all over the world. Please give us a call or send us an e-mail to set up your appointment or if you have any questions about the upcoming tax season.