By Michelle E. Botwinick, C.P.A.
In today’s economy, you may find yourself traveling away from your home base to find work. When it comes time to file taxes, it’s important to make sure you don’t shortchange yourself by not claiming deductions you are entitled to under the law. For tax purposes, the key factor is the assignment’s length. If you are away from home for more than one year, then the assignment is classified as “indefinite” (not “temporary”), and you won’t be able to deduct any of your personal living expenses. On the other hand, if you are actually away for one year or less, and it was realistic to expect that you would be away for one year or less, then your assignment qualifies as “temporary,” unless particular facts and circumstances indicate otherwise.
You can deduct the personal living costs—including the costs of lodging and meals—you incur while on temporary assignment away from home. But to be deductible, the lodging and meals can’t be extravagant or lavish. Meals are subject to the regular rules, which generally allow only half of their cost to be deductible. Other incidental living expenses, such as laundry or dry cleaning, are also deductible.
You can deduct the costs of trips home but only up to the amount you would have spent on lodging and meals at your temporary work location had you not gone home.
These employee business expenses are miscellaneous itemized deductions that are subject to the 2% floor rule. This means that your employee expenses are deductible only to the extent that, when added to your other miscellaneous itemized deductions, they exceed 2% of your adjusted gross income.
While the allowable amount of deductions can be significant, you must be careful to meet the substantiation requirements. You should save all receipts and other documentation relating to your deductible expenses, and you should keep a logbook showing the costs you incur while on temporary assignment away from home.
And to rebut any IRS attempt to treat your assignment as “indefinite,” it’s advisable to establish a record showing it was reasonable to expect the assignment would last one year or less. For example, you should save any memos or other documentation from your employer as to the nature of your assignment. Your employer’s written statement to the effect that the assignment isn’t expected to exceed one year could prove helpful.
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