In today’s highly mobile society, it’s not unusual for people to live and work in different states, and that mobility can have tax implications. In this two-part series, we will look at what that can mean for your taxes, starting with your federal income tax return.
Travel may be deductible
The primary issue to consider when it comes to federal taxes is the issue of the deductibility of travel-related expenses. To determine if travel expenses are deductible, the IRS uses the concept of tax home to determine when travel expenses are deductible.
Your tax home is generally the main location of your work or business, regardless of where your family home is. If you travel outside of the area that is considered your tax home for work (not just outside the state), then travel expenses are deductible.
For example, Jennifer’s family home is in Orlando, but she works in Raleigh, NC on a permanent basis and travels there each week. Jennifer’s tax home for federal tax purposes is Raleigh. None of her travel or hotel expenses will be deductible because she is working in her tax home.
In contrast, Alan usually works in Orlando, but his employer sends him to work in Atlanta to work on a special project. If this temporary assignment in Atlanta is expected to last for less than a year, Alan’s tax home will be Orlando, and his travel and accommodation expenses may be deductible.
Note that under the 2017 tax reform, the deduction for employee business expenses has been suspended until 2026, so taxpayers in this situation should seek reimbursement under an accountable plan.
In our next post, we will discuss the state income tax implications of working and living in different states. We are here to help; contact us for any questions about IRS regulations and tax deductions.