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Irs Com

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Irs Com

Irs com 2. Irs com   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Irs com Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Irs com S. Irs com or foreign source income. Irs com This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Irs com S. Irs com Virgin Islands (USVI). Irs com Generally, the same rules that apply for determining U. Irs com S. Irs com source income also apply for determining possession source income. Irs com However, there are some important exceptions to these rules. Irs com Both the general rules and the exceptions are discussed in this chapter. Irs com U. Irs com S. Irs com income rule. Irs com   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Irs com Table 2-1 shows the general rules for determining whether income is from sources within the United States. Irs com Table 2-1. Irs com General Rules for Determining U. Irs com S. Irs com Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Irs com Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Irs com For more information, see Regulations section 1. Irs com 863-1(b). Irs com Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Irs com Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Irs com Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Irs com It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Irs com Services performed wholly within a relevant possession. Irs com   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Irs com However, there is an exception for income earned as a member of the U. Irs com S. Irs com Armed Forces or a civilian spouse. Irs com U. Irs com S. Irs com Armed Forces. Irs com   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Irs com However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Irs com Civilian spouse of active duty member of the U. Irs com S. Irs com Armed Forces. Irs com   If you are a bona fide resident of a U. Irs com S. Irs com possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Irs com Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Irs com S. Irs com possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Irs com Services performed partly inside and partly outside a relevant possession. Irs com   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Irs com Compensation (other than certain fringe benefits) is sourced on a time basis. Irs com Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Irs com   Or, you may be permitted to use an alternative basis to determine the source of compensation. Irs com See Alternative basis , later. Irs com   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Irs com In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Irs com Time basis. Irs com   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Irs com Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Irs com The time period for which the income is made does not have to be a year. Irs com Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Irs com Example. Irs com In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Irs com Your Puerto Rico source income is $60,000, figured as follows. Irs com       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Irs com   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Irs com Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Irs com You determine the period to which the income is attributable based on the facts and circumstances of your case. Irs com For more information on multi-year compensation, see Treasury Decision (T. Irs com D. Irs com ) 9212 and Regulations section 1. Irs com 861-4, 2005-35 I. Irs com R. Irs com B. Irs com 429, available at www. Irs com irs. Irs com gov/irb/2005-35_IRB/ar14. Irs com html. Irs com Certain fringe benefits sourced on a geographical basis. Irs com   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Irs com Housing. Irs com Education. Irs com Local transportation. Irs com Tax reimbursement. Irs com Hazardous or hardship duty pay. Irs com Moving expense reimbursement. Irs com For information on determining the source of the fringe benefits listed above, see Regulations section 1. Irs com 861-4. Irs com Alternative basis. Irs com   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Irs com If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Irs com De minimis exception. Irs com   There is an exception to the rule for determining the source of income earned in a possession. Irs com Generally, you will not have income from a possession if during a tax year you: Are a U. Irs com S. Irs com citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Irs com This exception began with income earned during your 2008 tax year. Irs com Pensions. Irs com   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Irs com The contribution portion is sourced according to where services were performed that earned the pension. Irs com The investment earnings portion is sourced according to the location of the pension trust. Irs com Example. Irs com You are a U. Irs com S. Irs com citizen who worked in Puerto Rico for a U. Irs com S. Irs com company. Irs com All services were performed in Puerto Rico. Irs com Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Irs com S. Irs com pension trust of your employer. Irs com Distributions from the U. Irs com S. Irs com pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Irs com S. Irs com source income. Irs com Investment Income This category includes such income as interest, dividends, rents, and royalties. Irs com Interest income. Irs com   The source of interest income is generally determined by the residence of the payer. Irs com Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Irs com   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Irs com See Regulations section 1. Irs com 937-2(i) for more information. Irs com Dividends. Irs com   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Irs com There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Irs com For more information, see Regulations section 1. Irs com 937-2(g). Irs com Rental income. Irs com   Rents from property located in a relevant possession are treated as income from sources within that possession. Irs com Royalties. Irs com   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Irs com   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Irs com Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Irs com The most common situations are discussed below. Irs com Real property. Irs com   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Irs com The location of the property generally determines the source of income from the sale. Irs com For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Irs com If, however, the home you sold was located in the United States, the gain is U. Irs com S. Irs com source income. Irs com Personal property. Irs com   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Irs com Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Irs com If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Irs com   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Irs com The rules applying to sales of inventory are discussed below. Irs com For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Irs com Inventory. Irs com   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Irs com The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Irs com Purchased. Irs com   Income from the sale of inventory that you purchased is sourced where you sell the property. Irs com Generally, this is where title to the property passes to the buyer. Irs com Produced. Irs com   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Irs com For information on making the allocation, see Regulations section 1. Irs com 863-3(f). Irs com Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Irs com S. Irs com citizen or resident alien prior to becoming a bona fide resident of a possession. Irs com You are subject to these special rules if you meet both of the following conditions. Irs com For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Irs com For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Irs com If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Irs com Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Irs com S. Irs com tax return. Irs com (See chapter 3 for additional filing information. Irs com ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Irs com These rules apply to dispositions after April 11, 2005. Irs com For details, see Regulations section 1. Irs com 937-2(f)(1) and Examples 1 and 2 of section 1. Irs com 937-2(k). Irs com Example 1. Irs com In 2007, Cheryl Jones, a U. Irs com S. Irs com citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Irs com S. Irs com corporation listed on the New York Stock Exchange. Irs com On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Irs com Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Irs com On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Irs com On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Irs com Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Irs com The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Irs com This existing special rule applies if you are a U. Irs com S. Irs com citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Irs com S. Irs com assets during the 10-year period beginning when you became a bona fide resident. Irs com The gain is U. Irs com S. Irs com source income that generally is subject to U. Irs com S. Irs com tax if the property is either (1) located in the United States; (2) stock issued by a U. Irs com S. Irs com corporation or a debt obligation of a U. Irs com S. Irs com person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Irs com See chapter 3 for filing information. Irs com Special election. Irs com   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Irs com Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Irs com This election overrides both of the special rules discussed earlier. Irs com   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Irs com Marketable securities. Irs com   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Irs com Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Irs com S. Irs com holding periods. Irs com   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Irs com The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Irs com This is your gain (or loss) that is treated as being from sources within the relevant possession. Irs com If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Irs com Example 2. Irs com Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Irs com S. Irs com and possession holding periods. Irs com Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Irs com Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Irs com By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Irs com Other personal property. Irs com   For personal property other than marketable securities, use a time-based allocation. Irs com Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Irs com      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Irs com Example 3. Irs com In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Irs com On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Irs com On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Irs com She had owned the interest for a total of 1,720 days. Irs com Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Irs com The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Irs com By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Irs com Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Irs com Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Irs com These rules do not apply to amounts paid as salary or other compensation for services. Irs com See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Irs com Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Irs com These circumstances are listed below. Irs com You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Irs com That office or place of business is a material factor in producing the income. Irs com The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Irs com An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Irs com The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Irs com Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Irs com Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Irs com Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Irs com Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Irs com Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Irs com Example. Irs com Marcy Jackson is a bona fide resident of American Samoa. Irs com Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Irs com A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Irs com Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Irs com The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Irs com However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Irs com Prev  Up  Next   Home   More Online Publications
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Do I Need To Claim My Gambling Winnings and Can I Deduct My Gambling Losses?

Information You Will Need:

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  • Amount of your gambling winnings and losses
  • Any information provided to you on a Form W-2G

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The Irs Com

Irs com 1. Irs com   Travel Table of Contents Traveling Away From HomeTax Home Tax Home Different From Family Home Temporary Assignment or Job What Travel Expenses Are Deductible?Employee. Irs com Business associate. Irs com Bona fide business purpose. Irs com Meals Travel in the United States Travel Outside the United States Luxury Water Travel Conventions If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. Irs com This chapter discusses: Traveling away from home, Temporary assignment or job, and What travel expenses are deductible. Irs com It also discusses the standard meal allowance, rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses. Irs com Travel expenses defined. Irs com   For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Irs com   An ordinary expense is one that is common and accepted in your trade or business. Irs com A necessary expense is one that is helpful and appropriate for your business. Irs com An expense does not have to be required to be considered necessary. Irs com   You will find examples of deductible travel expenses in Table 1-1 , later. Irs com Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Irs com This rest requirement is not satisfied by merely napping in your car. Irs com You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Irs com Example 1. Irs com You are a railroad conductor. Irs com You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Irs com During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Irs com You are considered to be away from home. Irs com Example 2. Irs com You are a truck driver. Irs com You leave your terminal and return to it later the same day. Irs com You get an hour off at your turnaround point to eat. Irs com Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Irs com Members of the Armed Forces. Irs com   If you are a member of the U. Irs com S. Irs com Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Irs com You cannot deduct your expenses for meals and lodging. Irs com You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Irs com If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Irs com   A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes. Irs com Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Irs com Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Irs com It includes the entire city or general area in which your business or work is located. Irs com If you have more than one regular place of business, your tax home is your main place of business. Irs com See Main place of business or work , later. Irs com If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Irs com See No main place of business or work , later. Irs com If you do not have a regular or 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. Irs com As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Irs com Main place of business or work. Irs com   If you have more than one place of work, consider the following when determining which one is your main place of business or work. Irs com The total time you ordinarily spend in each place. Irs com The level of your business activity in each place. Irs com Whether your income from each place is significant or insignificant. Irs com Example. Irs com You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Irs com You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Irs com Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Irs com No main place of business or work. Irs com   You may have a tax home even if you do not have a regular or main place of work. Irs com Your tax home may be the home where you regularly live. Irs com Factors used to determine tax home. Irs com   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. Irs com 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. Irs com You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Irs com 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. Irs com   If you satisfy all three factors, your tax home is the home where you regularly live. Irs com If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Irs com If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Irs com Example 1. Irs com You are single and live in Boston in an apartment you rent. Irs com You have worked for your employer in Boston for a number of years. Irs com Your employer enrolls you in a 12-month executive training program. Irs com You do not expect to return to work in Boston after you complete your training. Irs com During your training, you do not do any work in Boston. Irs com Instead, you receive classroom and on-the-job training throughout the United States. Irs com You keep your apartment in Boston and return to it frequently. Irs com You use your apartment to conduct your personal business. Irs com You also keep up your community contacts in Boston. Irs com When you complete your training, you are transferred to Los Angeles. Irs com You do not satisfy factor (1) because you did not work in Boston. Irs com You satisfy factor (2) because you had duplicate living expenses. Irs com You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Irs com Therefore, you have a tax home in Boston. Irs com Example 2. Irs com You are an outside salesperson with a sales territory covering several states. Irs com Your employer's main office is in Newark, but you do not conduct any business there. Irs com Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. Irs com You have a room in your married sister's house in Dayton. Irs com You stay there for one or two weekends a year, but you do no work in the area. Irs com You do not pay your sister for the use of the room. Irs com You do not satisfy any of the three factors listed earlier. Irs com You are an itinerant and have no tax home. Irs com Tax Home Different From Family Home If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Irs com You also cannot deduct the cost of meals and lodging while at your tax home. Irs com See Example 1 , later. Irs com If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Irs com See Example 2 , later. Irs com Example 1. Irs com You are a truck driver and you and your family live in Tucson. Irs com You are employed by a trucking firm that has its terminal in Phoenix. Irs com At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Irs com You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Irs com This is because Phoenix is your tax home. Irs com Example 2. Irs com Your family home is in Pittsburgh, where you work 12 weeks a year. Irs com The rest of the year you work for the same employer in Baltimore. Irs com In Baltimore, you eat in restaurants and sleep in a rooming house. Irs com Your salary is the same whether you are in Pittsburgh or Baltimore. Irs com Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Irs com You cannot deduct any expenses you have for meals and lodging there. Irs com However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Irs com You can deduct the cost of your round trip between Baltimore and Pittsburgh. Irs com You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Irs com Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Irs com It may not be practical to return to your tax home from this other location at the end of each work day. Irs com Temporary assignment vs. Irs com indefinite assignment. Irs com   If your assignment or job away from your main place of work is temporary, your tax home does not change. Irs com You are considered to be away from home for the whole period you are away from your main place of work. Irs com You can deduct your travel expenses if they otherwise qualify for deduction. Irs com Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Irs com    However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Irs com An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Irs com   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Irs com You may be able to deduct the cost of relocating to your new tax home as a moving expense. Irs com See Publication 521 for more information. Irs com Exception for federal crime investigations or prosecutions. Irs com   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Irs com This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility. Irs com   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. Irs com Determining temporary or indefinite. Irs com   You must determine whether your assignment is temporary or indefinite when you start work. Irs com If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Irs com An assignment or job that is initially temporary may become indefinite due to changed circumstances. Irs com A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Irs com   The following examples illustrate whether an assignment or job is temporary or indefinite. Irs com Example 1. Irs com You are a construction worker. Irs com You live and regularly work in Los Angeles. Irs com You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Irs com Your tax home is Los Angeles. Irs com Because of a shortage of work, you took a job on a construction project in Fresno. Irs com Your job was scheduled to end in 8 months. Irs com The job actually lasted 10 months. Irs com You realistically expected the job in Fresno to last 8 months. Irs com The job actually did last less than 1 year. Irs com The job is temporary and your tax home is still in Los Angeles. Irs com Example 2. Irs com The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. Irs com The job actually was completed in 10 months. Irs com Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. Irs com You cannot deduct any travel expenses you had in Fresno because Fresno became your tax home. Irs com Example 3. Irs com The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. Irs com After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months). Irs com Initially, you realistically expected the job in Fresno to last for only 9 months. Irs com However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. Irs com You can only deduct your travel expenses for the first 8 months. Irs com You cannot deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite. Irs com Going home on days off. Irs com   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. Irs com You cannot deduct the cost of your meals and lodging there. Irs com However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Irs com You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Irs com   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Irs com In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Irs com Probationary work period. Irs com   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Irs com You cannot deduct any of your expenses for meals and lodging during the probationary period. Irs com What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Irs com You can deduct ordinary and necessary expenses you have when you travel away from home on business. Irs com The type of expense you can deduct depends on the facts and your circumstances. Irs com Table 1-1 summarizes travel expenses you may be able to deduct. Irs com You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Irs com When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Irs com You can use a log, diary, notebook, or any other written record to keep track of your expenses. Irs com The types of expenses you need to record, along with supporting documentation, are described in Table 5-1 (see chapter 5). Irs com Separating costs. Irs com   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Irs com You must have a reasonable basis for making this allocation. Irs com For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Irs com Travel expenses for another individual. Irs com    If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Irs com Employee. Irs com   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Irs com Business associate. Irs com   If a business associate travels with you and meets the conditions in (2) and (3), earlier, you can deduct the travel expenses you have for that person. Irs com A business associate is someone with whom you could reasonably expect to actively conduct business. Irs com A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Irs com Bona fide business purpose. Irs com   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Irs com Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Irs com Table 1-1. Irs com Travel Expenses You Can Deduct   This chart summarizes expenses you can deduct when you travel away from home for business purposes. Irs com IF you have expenses for. Irs com . Irs com . Irs com THEN you can deduct the cost of. Irs com . Irs com . Irs com transportation travel by airplane, train, bus, or car between your home and your business destination. Irs com If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Irs com If you travel by ship, see Luxury Water Travel and Cruise Ships (under Conventions) for additional rules and limits. Irs com taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Irs com baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Irs com car operating and maintaining your car when traveling away from home on business. Irs com You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. Irs com If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Irs com lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Irs com Meals include amounts spent for food, beverages, taxes, and related tips. Irs com See Meals for additional rules and limits. Irs com cleaning dry cleaning and laundry. Irs com telephone business calls while on your business trip. Irs com This includes business communication by fax machine or other communication devices. Irs com tips tips you pay for any expenses in this chart. Irs com other other similar ordinary and necessary expenses related to your business travel. Irs com These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Irs com Example. Irs com Jerry drives to Chicago on business and takes his wife, Linda, with him. Irs com Linda is not Jerry's employee. Irs com Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Irs com The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Irs com Her expenses are not deductible. Irs com Jerry pays $199 a day for a double room. Irs com A single room costs $149 a day. Irs com He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Irs com If he uses public transportation, he can deduct only his fare. Irs com Meals You can deduct the cost of meals in either of the following situations. Irs com It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Irs com The meal is business-related entertainment. Irs com Business-related entertainment is discussed in chapter 2 . Irs com The following discussion deals only with meals that are not business-related entertainment. Irs com Lavish or extravagant. Irs com   You cannot deduct expenses for meals that are lavish or extravagant. Irs com An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Irs com Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Irs com 50% limit on meals. Irs com   You can figure your meals expense using either of the following methods. Irs com Actual cost. Irs com The standard meal allowance. Irs com Both of these methods are explained below. Irs com But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Irs com   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Irs com If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Irs com Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans. Irs com Actual Cost You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Irs com If you use this method, you must keep records of your actual cost. Irs com Standard Meal Allowance Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Irs com It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Irs com The set amount varies depending on where and when you travel. Irs com In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Irs com If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Irs com See the recordkeeping rules for travel in chapter 5 . Irs com Incidental expenses. Irs com   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Irs com   Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Irs com Incidental-expenses-only method. Irs com   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Irs com The amount of the deduction is $5 a day. Irs com You can use this method only if you did not pay or incur any meal expenses. Irs com You cannot use this method on any day that you use the standard meal allowance. Irs com This method is subject to the proration rules for partial days. Irs com See Travel for days you depart and return , later in this chapter. Irs com Note. Irs com The incidental-expenses-only method is not subject to the 50% limit discussed below. Irs com Federal employees should refer to the Federal Travel Regulations at www. Irs com gsa. Irs com gov. Irs com Find the “Most Requested Links” on the upper left and click on “Regulations: FAR, FMR, FTR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Irs com 50% limit may apply. Irs com   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Irs com If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Irs com The 50% limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6. Irs com There is no optional standard lodging amount similar to the standard meal allowance. Irs com Your allowable lodging expense deduction is your actual cost. Irs com Who can use the standard meal allowance. Irs com   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Irs com Use of the standard meal allowance for other travel. Irs com   You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Irs com You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Irs com You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Irs com Amount of standard meal allowance. Irs com   The standard meal allowance is the federal M&IE rate. Irs com For travel in 2013, the rate for most small localities in the United States is $46 a day. Irs com    Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Irs com    You can find this information (organized by state) on the Internet at www. Irs com gsa. Irs com gov/perdiem. Irs com Enter a zip code or select a city and state for the per diem rates for the current fiscal year. Irs com Per diem rates for prior fiscal years are available by using the drop down menu under “Search by State. Irs com ”   Per diem rates are listed by the Federal government's fiscal year which runs from October 1 to September 30. Irs com You can choose to use the rates from the 2013 fiscal year per diem tables or the rates from the 2014 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. Irs com   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Irs com If you work in the transportation industry, however, see Special rate for transportation workers , later. Irs com Standard meal allowance for areas outside the continental United States. Irs com   The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Irs com The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Irs com S. Irs com Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Irs com The Department of State establishes per diem rates for all other foreign areas. Irs com    You can access per diem rates for non-foreign areas outside the continental United States at: www. Irs com defensetravel. Irs com dod. Irs com mil/site/perdiemCalc. Irs com cfm. Irs com You can access all other foreign per diem rates at: www. Irs com state. Irs com gov/travel/. Irs com Click on “Travel Per Diem Allowances for Foreign Areas,” under “Foreign Per Diem Rates” to obtain the latest foreign per diem rates. Irs com Special rate for transportation workers. Irs com   You can use a special standard meal allowance if you work in the transportation industry. Irs com You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Irs com If this applies to you, you can claim a standard meal allowance of $59 a day ($65 for travel outside the continental United States). Irs com   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Irs com If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Irs com Travel for days you depart and return. Irs com   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Irs com You can do so by one of two methods. Irs com Method 1: You can claim 3/4 of the standard meal allowance. Irs com Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Irs com Example. Irs com Jen is employed in New Orleans as a convention planner. Irs com In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Irs com She left her home in New Orleans at 10 a. Irs com m. Irs com on Wednesday and arrived in Washington, DC, at 5:30 p. Irs com m. Irs com After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Irs com m. Irs com Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Irs com Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Irs com Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Irs com For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Irs com Travel in the United States The following discussion applies to travel in the United States. Irs com For this purpose, the United States includes the 50 states and the District of Columbia. Irs com The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Irs com See Part of Trip Outside the United States , later. Irs com Trip Primarily for Business You can deduct all of your travel expenses if your trip was entirely business related. Irs com If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. Irs com These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Irs com Example. Irs com You work in Atlanta and take a business trip to New Orleans in May. Irs com Your business travel totals 850 miles round trip. Irs com On your way, you stop in Mobile to visit your parents. Irs com You spend $2,120 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Irs com If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,820. Irs com You can deduct $1,820 for your trip, including the cost of round-trip transportation to and from New Orleans. Irs com The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Irs com Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Irs com However, you can deduct any expenses you have while at your destination that are directly related to your business. Irs com A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Irs com The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Irs com Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. Irs com For the part of your trip that is inside the United States, use the rules for travel in the United States. Irs com Travel outside the United States does not include travel from one point in the United States to another point in the United States. Irs com The following discussion can help you determine whether your trip was entirely within the United States. Irs com Public transportation. Irs com   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Irs com Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Irs com Example. Irs com You fly from New York to Puerto Rico with a scheduled stop in Miami. Irs com You return to New York nonstop. Irs com The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Irs com Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Irs com Private car. Irs com   Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States. Irs com Example. Irs com You travel by car from Denver to Mexico City and return. Irs com Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Irs com The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Irs com Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Irs com For this purpose, the United States includes the 50 states and the District of Columbia. Irs com How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Irs com Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Irs com Travel entirely for business. Irs com   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Irs com Travel considered entirely for business. Irs com   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Irs com Exception 1 - No substantial control. Irs com   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Irs com The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Irs com   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, and Are not related to your employer, or Are not a managing executive. Irs com    “Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances . Irs com   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Irs com   A self-employed person generally has substantial control over arranging business trips. Irs com Exception 2 - Outside United States no more than a week. Irs com   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Irs com One week means 7 consecutive days. Irs com In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Irs com Example. Irs com You traveled to Brussels primarily for business. Irs com You left Denver on Tuesday and flew to New York. Irs com On Wednesday, you flew from New York to Brussels, arriving the next morning. Irs com On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. Irs com You flew back to New York, arriving Wednesday afternoon. Irs com On Thursday, you flew back to Denver. Irs com Although you were away from your home in Denver for more than a week, you were not outside the United States for more than a week. Irs com This is because the day you depart does not count as a day outside the United States. Irs com You can deduct your cost of the round-trip flight between Denver and Brussels. Irs com You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. Irs com However, you cannot deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities. Irs com Exception 3 - Less than 25% of time on personal activities. Irs com   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Irs com For this purpose, count both the day your trip began and the day it ended. Irs com Example. Irs com You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. Irs com You then flew back to Seattle. Irs com You spent 1 day flying in each direction. Irs com Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you had not engaged in any nonbusiness activity. Irs com The amount you can deduct is the cost of the round-trip plane fare and 16 days of meals (subject to the 50% limit), lodging, and other related expenses. Irs com Exception 4 - Vacation not a major consideration. Irs com   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Irs com Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on other activities, you generally cannot deduct all of your travel expenses. Irs com You can only deduct the business portion of your cost of getting to and from your destination. Irs com You must allocate the costs between your business and other activities to determine your deductible amount. Irs com See Travel allocation rules , later. Irs com You do not have to allocate your travel expenses if you meet one of the four exceptions listed earlier under Travel considered entirely for business . Irs com In those cases, you can deduct the total cost of getting to and from your destination. Irs com Travel allocation rules. Irs com   If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. Irs com The days you depart from and return to the United States are both counted as days outside the United States. Irs com   To figure the deductible amount of your round-trip travel expenses, use the following fraction. Irs com The numerator (top number) is the total number of business days outside the United States. Irs com The denominator (bottom number) is the total number of business and nonbusiness days of travel. Irs com Counting business days. Irs com   Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays. Irs com Transportation day. Irs com   Count as a business day any day you spend traveling to or from a business destination. Irs com However, if because of a nonbusiness activity you do not travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. Irs com Extra days for side trips or nonbusiness activities cannot be counted as business days. Irs com Presence required. Irs com   Count as a business day any day your presence is required at a particular place for a specific business purpose. Irs com Count it as a business day even if you spend most of the day on nonbusiness activities. Irs com Day spent on business. Irs com   If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. Irs com Also, count as a business day any day you are prevented from working because of circumstances beyond your control. Irs com Certain weekends and holidays. Irs com   Count weekends, holidays, and other necessary standby days as business days if they fall between business days. Irs com But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, do not count them as business days. Irs com Example 1. Irs com Your tax home is New York City. Irs com You travel to Quebec, where you have a business appointment on Friday. Irs com You have another appointment on the following Monday. Irs com Because your presence was required on both Friday and Monday, they are business days. Irs com Because the weekend is between business days, Saturday and Sunday are counted as business days. Irs com This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity. Irs com Example 2. Irs com If, in Example 1, you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days. Irs com Nonbusiness activity on the way to or from your business destination. Irs com   If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Irs com   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends. Irs com   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Irs com The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Irs com Example. Irs com You live in New York. Irs com On May 4 you flew to Paris to attend a business conference that began on May 5. Irs com The conference ended at noon on May 14. Irs com That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. Irs com The primary purpose for the trip was to attend the conference. Irs com If you had not stopped in Dublin, you would have arrived home the evening of May 14. Irs com You do not meet any of the exceptions that would allow you to consider your travel entirely for business. Irs com May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days. Irs com You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris. Irs com You cannot deduct your expenses while in Dublin. Irs com You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin. Irs com You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. Irs com Round-trip airfare from New York to Dublin would have been $1,250. Irs com You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7/18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850). Irs com Your deductible air travel expense is $1,364 ($1,850 − $486). Irs com Nonbusiness activity at, near, or beyond business destination. Irs com   If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Irs com   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends. Irs com   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Irs com The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Irs com   None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible. Irs com Example. Irs com Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation. Irs com You cannot deduct any part of the cost of your trip from Paris to Venice and return to Paris. Irs com In addition, you cannot deduct 7/18 of the airfare and other expenses from New York to Paris and back to New York. Irs com You can deduct 11/18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your meals (subject to the 50% limit), lodging, and any other business expenses you had in Paris. Irs com (Assume these expenses total $4,939. Irs com ) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 (11/18 × $1,750), plus the full $4,939 for the expenses you had in Paris. Irs com Other methods. Irs com   You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States. Irs com Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Irs com However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Irs com Example. Irs com The university from which you graduated has a continuing education program for members of its alumni association. Irs com This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. Irs com However, none of the conferences are directed toward specific occupations or professions. Irs com It is up to each participant to seek out specialists and organizational settings appropriate to his or her occupational interests. Irs com Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. Irs com These sessions are composed of a variety of activities including workshops, mini-lectures, role playing, skill development, and exercises. Irs com Professional conference directors schedule and conduct the sessions. Irs com Participants can choose those sessions they wish to attend. Irs com You can participate in this program since you are a member of the alumni association. Irs com You and your family take one of the trips. Irs com You spend about 2 hours at each of the planned sessions. Irs com The rest of the time you go touring and sightseeing with your family. Irs com The trip lasts less than 1 week. Irs com Your travel expenses for the trip are not deductible since the trip was primarily a vacation. Irs com However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. Irs com These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses. Irs com Luxury Water Travel If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. Irs com The limit is twice the highest federal per diem rate allowable at the time of your travel. Irs com (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the United States, for business purposes. Irs com ) Daily limit on luxury water travel. Irs com   The highest federal per diem rate allowed and the daily limit for luxury water travel in 2013 is shown in the following table. Irs com   2013 Dates Highest Federal Per Diem Daily Limit on Luxury Water Travel   Jan. Irs com 1 – Mar. Irs com 31 $367 $734   Apr. Irs com 1 – June 30 312 624   July 1 – Aug. Irs com 31 310 620   Sept. Irs com 1 – Sept. Irs com 30 366 732   Oct. Irs com 1 – Dec. Irs com 31 374 748 Example. Irs com Caroline, a travel agent, traveled by ocean liner from New York to London, England, on business in May. Irs com Her expense for the 6-day cruise was $5,200. Irs com Caroline's deduction for the cruise cannot exceed $3,744 (6 days × $624 daily limit). Irs com Meals and entertainment. Irs com   If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. Irs com For a discussion of the 50% Limit , see chapter 2. Irs com Example. Irs com In the previous example, Caroline's luxury water travel had a total cost of $5,200. Irs com Of that amount, $3,700 was separately stated as meals and entertainment. Irs com Caroline, who is self-employed, is not reimbursed for any of her travel expenses. Irs com Caroline figures her deductible travel expenses as follows. Irs com Meals and entertainment $3,700   50% limit × . Irs com 50   Allowable meals &     entertainment $1,850   Other travel expenses + 1,800   Allowable cost before the daily limit $3,650 Daily limit for May 2013 $624   Times number of days × 6   Maximum luxury water travel     deduction $3,744 Amount of allowable deduction $3,650 Caroline's deduction for her cruise is limited to $3,650, even though the limit on luxury water travel is slightly higher. Irs com Not separately stated. Irs com   If your meal or entertainment charges are not separately stated or are not clearly identifiable, you do not have to allocate any portion of the total charge to meals or entertainment. Irs com Exceptions The daily limit on luxury water travel (discussed earlier) does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. Irs com See Cruise Ships under Conventions. Irs com Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Irs com You cannot deduct the travel expenses for your family. Irs com If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Irs com Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Irs com You can deduct your travel expenses only if your attendance is connected to your own trade or business. Irs com Convention agenda. Irs com   The convention agenda or program generally shows the purpose of the convention. Irs com You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Irs com The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Irs com Conventions Held Outside the North American Area You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless: The meeting is directly related to your trade or business, and It is reasonable to hold the meeting outside the North American area. Irs com See Reasonableness test , later. Irs com If the meeting meets these requirements, you also must satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States . Irs com North American area. Irs com   The North American area includes the following locations. Irs com American Samoa Johnston Island Antigua and Barbuda Kingman Reef Aruba Marshall Islands Bahamas Mexico Baker Island Micronesia Barbados Midway Islands Bermuda Netherlands Antilles Canada Northern Mariana Costa Rica Islands Dominica Palau Dominican Republic Palmyra Atoll Grenada Panama Guam Puerto Rico Guyana Trinidad and Tobago Honduras USA Howland Island U. Irs com S. Irs com Virgin Islands Jamaica Wake Island Jarvis Island   The North American area also includes U. Irs com S. Irs com islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia. Irs com Reasonableness test. Irs com   The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area. Irs com The purpose of the meeting and the activities taking place at the meeting. Irs com The purposes and activities of the sponsoring organizations or groups. Irs com The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held. Irs com Other relevant factors you may present. Irs com Cruise Ships You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. Irs com All ships that sail are considered cruise ships. Irs com You can deduct these expenses only if all of the following requirements are met. Irs com The convention, seminar, or meeting is directly related to your trade or business. Irs com The cruise ship is a vessel registered in the United States. Irs com All of the cruise ship's ports of call are in the United States or in possessions of the United States. Irs com You attach to your return a written statement signed by you that includes information about: The total days of the trip (not including the days of transportation to and from the cruise ship port), The number of hours each day that you devoted to scheduled business activities, and A program of the scheduled business activities of the meeting. Irs com You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes: A schedule of the business activities of each day of the meeting, and The number of hours you attended the scheduled business activities. Irs com Prev  Up  Next   Home   More Online Publications