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Take a tax-free trip home while away on business

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in Small Business Tax

Say you have to leave town for an extended business trip. You’d rather spend weekends home with your family, but it costs too much to fly back and forth.

Strategy: Have your company reimburse you for the airfare home. If you provide an adequate accounting of your expenses, the reimbursement is deductible for the company and tax-free to you.

The IRS itself says this technique is perfectly legit in Pub. 17 (p. 169):

“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.”

If you’re on a temporary assignment in a city where meals and lodging are expensive, the cost of the trip home may be lower than staying there for the weekend. Your company can pay your way home and still save some cash.

Example: Suppose you’re staying in a $250-a-night hotel and your daily meals cost about $100. It will cost you $700 to stay out of town during the weekend. If you fly home instead, the airfare will cost only $500. So, your company deducts $500, and you go home for free.

Now, let’s say the airfare costs $750 because you decide to upgrade to first class. In that case, the company deducts $700. The IRS treats the additional $50 as taxable compensation.

The IRS defines a temporary assignment as 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.

Tip: Access related information about travel deductions in IRS Pub. 17 at www.irs.gov/pub/irs-pdf/p17.pdf.

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