If it’s necessary, you may have to travel away from home on business for an extended period of time. Of course, you’d rather spend weekends back with your family, but it might cost too much to fly back and forth.
Strategy: Have your company reimburse you for the air fare. As long as you provide adequate accounting of expenses, the reimbursement is deductible by the company and tax-free to you. It’s like taking a personal trip home courtesy of Uncle Sam!
Does this sound too good to be true? It’s not. The IRS says this technique is perfectly legit in Pub. 17 (page 176). Here’s a direct quote:
“If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. You cannot deduct the cost of your meals and lodging there. However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work.”
Thus, if you’re away on a temporary assignment in a city where meals and lodging are expensive, the cost of the trip home may be less than the cost of staying. Your company will be only too happy to pay your way home to save some cash.
Example: You’re staying in a hotel that costs $300 a night and your daily meals average $100. Therefore, it will cost you $800 to stay out of town during the weekend. If you fly home for the weekend instead, the air fare will cost only $500. So your company deducts $500 and you can come home for free without any tax hit.
Now let’s say the air fare costs $850 because you decide to upgrade to first class. In that case, the company still deducts $800. The additional $50 is treated as taxable compensation to you.
The IRS considers a temporary assignment to be work away from your tax home that lasts for one year or less. So you can use this tax technique if you’re traveling on business for a few months or just a few weeks.
Advice: Check out of your hotel room when you come home. The IRS says you can’t deduct both the hotel room and the personal trip home.
If you don’t check out, your company still can deduct the lodging expenses, but the deduction for your trip home is limited to the amount allowed for just your meals while you’re away on business.
Tip: Read related information about travel deductions in IRS Pub. 17 at www.irs.gov/pub/irs-pdf/p17.pdf.