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Travel expenses revisited.

Section 162(a)(2) of the tax code allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on a trade or business during the taxable year, including travel expenses while the taxpayer is away from home overnight. Travel expenses are broadly defined and include those for transportation, meals and lodging (which should not be lavish or extravagant under the circumstances and are only 80% deductible) as well as routine incidentals such as laundry.

Travel expenses are allowed only if the taxpayer is away from home for a temporary period. "Temporary" means that the assignment will end within a reasonably short period of time. Thus, if a taxpayer is reassigned to a new location for an indefinite period, the new location becomes the taxpayer's tax home and any related travel expense deductions are denied.

Under section 1938 of the Energy Policy Act of 1992, a taxpayer is not treated as being temporarily away from home under section 162(a)(2) during any period of employment that exceeds one year. This new one-year rule is effective for costs paid or incurred after December 31, 1992.

In notice 93-29, the Internal Revenue Service recently announced that if the period away from home straddles the end of 1992 and the beginning of 1993, a taxpayer may be able to deduct the travel expenses incurred before the end of 1992.

The following example illustrates the new one-year rule: A taxpayer begins work at a distant location on March 1, 1992, and remains on assignment at that location until July 31, 1993. The taxpayer can deduct travel expenses incurred or paid in 1992 if the requirements of section 162(a)(2) are met. However, the taxpayer cannot deduct any of the 1993 travel expenses because the period of employment away from home exceeded one year.

Observation: It is possible a temporary assignment may become indefinite due to changed circumstances or simply the passage of time. Generally, this occurs when a taxpayer initially accepts a job that was expected to be temporary and then accepts another job in the same area for a period in excess of one year or if the initial job extends beyond the original time estimate. The result is that the new area becomes the taxpayer's tax home and the related travel expenses are not deductible.
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Article Details
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Aug 1, 1993
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