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T&E expenses: Set boundaries on temporary assignments

by on
in Small Business Tax,Small Business Tax Deduction Strategies

When you travel away from your home on business, you can deduct your gas and related expenses. But you generally can’t write off “commuting” expenses, although there are several exceptions in the tax law.

Strategy: Keep temporary assignments to less than one year. As a result, you may be able to write off your travel expenses between your home and the temporary job site.

However, if the assignment lasts indefinitely, you won’t qualify for deductions under this special tax law exception.

The IRS defines a “temporary assignment” as one that is realistically expected to last (and does last) for one year or less. However, if the assignment is expected to last longer than one year, it is treated as an indefinite assignment, even if you wrap up the work in less than one year. Travel ex­­penses for indefinite assignments are nondeductible.

Furthermore, to deduct travel expenses while away on a temporary assignment, the work location must be outside the metropolitan area where you normally live and work.

New case: A construction worker residing in Manchester, Ohio, commuted to five temporary work sites in 2007. None of the jobs lasted longer than a few months. The temporary work sites ranged in distance from 74 miles to 96 miles from his home. His employer did not reimburse the worker for travel expenses.

On his 2007 federal income tax return, the worker claimed a deduction of nearly $24,000. But the IRS disallowed almost all of it.

The worker’s own testimony before the Tax Court did him in. He stated, “My main area is Cincinnati. Cincinnati metro­poli­­tan area.” Because the temporary work sites weren’t outside the metropolitan area where he normally lived and worked, the Tax Court sided with the IRS. (Saunders, TC Memo 2012-200)

Tip: If an employer reimburses travel costs, the reimbursements are generally tax-free to employees.

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