What Happens if I Live and Work in Different States? Federal Taxes

by | Sep 17, 2019 | IRS, Tax Advice

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.

Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.

Todd Schanel has been a principal at Schanel & Associates since 2004, where he specializes in financial planning, tax planning and consulting services. He also serves as Founding Principal and Director of Investment Advisory Services at Core Wealth Management, our sister company, where he leads an accomplished professional team offering independent and objective financial advice to help clients achieve their financial goals. Todd has been a CFA Charterholder since 2005, and in 2007 he earned his Certified Financial Planner® designation and became a licensed CPA. In 2015, he earned the Certified Valuation Analyst (CVA) designation.