How can I use my tax home to protect my per diem during an IRS audit?
A "tax home" is important for a business owner to understand, especially when your business is in long-haul trucking. Without a tax home, your per diem and business mileage are in danger if the IRS selects your tax returns for review. So, what is a tax home?
The IRS generally defines your tax home as your place of business, regardless of the location of your family residence:
By the nature of long-haul trucking, there is no regular or main place of business so the IRS uses the following three factors to decide on your tax home:
Business is conducted in an area of the main home and the taxpayer uses that home for lodging while doing business in the area.
The taxpayer's living expenses at the main home are duplicated when a business requires the taxpayer to be away from that home.
The taxpayer has not abandoned the area in which both his or her historical place of lodging and claimed main home is located, or the taxpayer's family member lives at the main home, or the taxpayer often uses that home for lodging.
If all three of those are true, your tax home is where you claim as your residence. Whew! Hang on, though--if only ONE of the statements is true, you're classified as an "itinerant worker" and cannot claim travel expenses (per diem) because you're never considered to be traveling away from your tax home. Doh!
The fastest fix for this is to claim a space in your home as your home office:
Take a picture of this and send it to your tax accountant so they have it on file. Your home office can be as small as a filing cabinet.
The IRS has rules for everything and a home office is no exception:
Here's what needs to be satisfied to claim an area as business use of your home:
The home office area is exclusively and regularly used as your principal place of business.
Exclusive use means we can't use the area for business and personal reasons (kitchen tables and family rooms are out). If an IRS agent visited your home, you'd want them to easily understand that nobody else uses the area (as small as a filing cabinet) when you're away.
Regular use is subjective and requires facts and circumstances to figure out if you "regularly" use your office. Even if you're only home five days per year, you'll meet the Regular Use Test if you can say you use this area every time you return home to organize your files, plan your next loads and routes, and run your business.
Confirm your Tax Home and Home Office are Legit:
If you haven't already, tell your tax accountant about your home office. Here's your homework:
Take a picture of your home office space.
Forward the picture with dimensions of the space to your tax accountant.
Confirm this space will be seen reasonable to an IRS agent if they wanted to look at it.
As long as you own or rent your home and haven't abandoned it altogether, claiming your home office space satisfies the "tax home" question about conducting business from home. Paying for your mortgage or rent satisfies the living expense question. You're all set!
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