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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10164
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Deductible Business expense question: I have a sole

Customer Question

Deductible Business expense question:
I have a sole proprietorship business. We buy overstock merchandise from building supply stores(Home Depot and Lowes) and resell on Amazon. We must deal with each location in person wherever in the country they are located. Our plan is to give up our apartment/office and travel full time across the country as needed to source our inventory and ship it to FBA warehouses directly from the hotel rooms in the various cities we travel to. Basically, we would be living out of business short-term hotels 95% of the time. The other 5% would be spent with a relative. We consider this residence as our domicile for legal purposes.
My question is what percentage of our hotel and travel expense can be deducted for IRS purposes? I would like whoever is qualified in such tax issues to cite the appropriate IRS Code and then a layman's interpretation.
Thank You,
Jeff
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Hi - I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I can help here

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The tax policy/logic of what IRS, and title 26, calls "tax home," is central to your question.

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IRS' tax topic 511: https://www.irs.gov/taxtopics/tc511.html deals with this in an atypically clear way

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From tax topic 511: "Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home"

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You are traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day's work, and you need to get sleep or rest to meet the demands of your work while away.

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What you have described is a VERY non-typical situation and quite honestly a situation that the tax code does NOT deal with specifically OTHER than simply assigning the place (metropolitan area) where you DO end up spending more time that other's as your tax home, and doing the math from there.

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See this Example from IRS, to understand how IRS typically stacks the deck, if you will, against those who travel consistently for business purposes:

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"Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals or lodging in Milwaukee because that is your tax home. Your travel on weekends to your family home in Chicago is not for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located."

Expert:  Lane replied 10 months ago.

If the 5% of time that you spend with the relative is more than you spend in any other one metropolitan city, thet that is your tax home ....

Upon any audit (which is the question being asked here), IRS would most likely look at that issue your main place of business, along with where you receive mail, etc. as a way of determining your "tax home," your main place of business.

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Given THAT assumption then all lodging and other travel costs (not meals - unless business meals entertaining customers or prospective customers) would be deductible.

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But again, this assumes that your travel is so wide and dispersed amoun locations that the 5% location DOES meet the test of "tax home."

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Expert:  Lane replied 10 months ago.

Travel Back TO your tax home (as in the IRS example) would not be deductible because you are not traveling THERE for business.

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Hope this helps

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lett me know if you have questions

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Lane

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Expert:  emc011075 replied 10 months ago.

Anther expert here:

From IRS publication 17:

If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home.

https://www.irs.gov/publications/p17/ch26.html#en_US_2015_publink100022605

Expert:  Lane replied 10 months ago.

I would agree with that statement above EXCEPT that you stated your place of domicile

Expert:  Lane replied 10 months ago.

If this relative's residence, where you will be living, is indeed your domicile as you mention, you register to vote there, you receive mail there, etc. you are NOT a transient.

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Your situation is much more akin to the "traveling salesman."

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See this article by Jeff Franco, who holds a Master of Business Administration in accounting and a Master of Science in taxation from Fordham University. He also holds a Juris Doctor from Brooklyn Law School.

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http://yourbusiness.azcentral.com/taxdeductible-traveling-salesman-2305.html

Expert:  Lane replied 10 months ago.

Then information we've provided here hopefully gives you a frame of reference for making the decision regarding how to report.

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As you can see, your situation could be seen as running on a continuum where, on one end, almost everything is deductible if you can make the case for a tax home ... to, on the other end of the continuum, not being deductible at all, if you are so COMPLETELY mobile as to be considered an itinerant.

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Hope this has helped … let me know if you have questions

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If this HAS helped, (and you don’t have additional questions on this), I'd really appreciate your positive rating … (by using the stars or rating request on your screen) … … That’s the only way I'll be credited a portion of what you've paid JustAnswer.

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Thank you,

Lane

Expert:  Lane replied 10 months ago.

P.S. - I found something that should help you to pin this down (IRS Publication 463):

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"Factors used to determine tax home. If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is.

  1. You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.

  2. You have living expenses at your main home that you duplicate because your business requires you to be away from that home.

  3. You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.

If you satisfy all three factors, your tax home is the home where you regularly live. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses.

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Based on this, I would seriously consider establishing office space in the home that you mention as your domicile, setting up a business mailing address there, and increase the amount of time you DO spend there, increasing the likelihood that this would be your tax home.

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Lane

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Customer: replied 10 months ago.
Thank you for your reply Lane. I am trying to digest and create a sort of flow diagram of the info you have provided to make sure I understand what or what-not we should be doing. I would like to have tomorrow morning to formulate any further questions of understanding.I am in my early sixties and only ventured into this relatively new way of living and making an online living in early 2014. Although we have decided to spend the vast majority of our time in hotels, our reasonable 1 year goal is to ditch the hotels for a motor coach and a tag-along vehicle. That is a totally separate issue that would require a separate consultation in the future.I will make contact with you early tomorrow afternoon. I appreciate your efforts so far and am interested to know how I provide you with extra compensation when the time comes for me to finalize the original content of my question.Thank You,
Jeff
Expert:  Lane replied 10 months ago.

You positive rating will be thanks enough, Jeff ... (otherwise JustAnswer doesn't credit me with ANY of what you've paid them).

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If you'd like I can make what's called an "additional services offer" which provides a private link where we can share contact info confidentially.

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If you accept that, then I'll enter the office number and we can drill down on this some more tomorrow.

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Lane

Expert:  Lane replied 10 months ago.

Hi,

I’m just checking back in to see how things are going.

Did my answer help?

Let me know…

Thanks

Lane

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