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Question
Hello,

Next year my wife and I will be independent contractors working for a non-profit headquartered in Washington.  Our jobs will require quite a bit of travel and we are wondering how to define our "tax home" and what ability we will have to deduct business travel expenses being self employed.

For 5 to 6 months of the year we see ourselves being located in central Guatemala supporting the work the non-profit does there.  The rest of the time we will be in the USA traveling to various locations where the ministry has "hubs" of connections to promote, report, and deepen the relationships with the organization.  If I had to guess I would say we would spend a couple weeks to a month in several locations and 2 to 4 months at the headquarters in WA state.

So from a time perspective would our "tax home" be Guatemala or would our "tax home" be WA state because that is where the non-profit headquarters is and where we would spend the most amount of time while we are in the USA?  

Also, do I understand correctly that all expenses for travel and living expenses outside our tax home would be deductible?  If this type of arrangement went on for several years would that change the answer?  Finally if we started spending more time in Guatemala say 7 or 8 months of the year would that change the answer?

Thank you in advance for your help!

Tim

Answer
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 Ohio but work in Washington where you stay in a hotel and eat in restaurants. You return to Ohio every weekend. You may not deduct any of your travel, meals, or lodging in Washington because that is your tax home. Your travel on weekends to your family home in Ohio 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.

In determining your main place of business, take into account the length of time you are normally required to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time spent at each location.

This is subjective based on the above factors and is something that should be determined after you or a tax professional has completed a thorough review and analysis of your situation. To simplify matters, there is no state income tax in Washington (and none in Guatemala) so the outcome between Guatemala and Washington will be the same as you will only have a federal income tax return to prepare. However, if your prior residency was in a state that has an income tax, you will need to carefully review their residency rules to ensure that you are no longer considered a resident of that state and subject to that state's income tax. Each state has different rules for state tax residency, so this is an area that you will want to carefully review.

Best regards,
Randall

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Randall Brody, EA, MBA, CCP

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Tax Samaritan is a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the unique tax issues that apply to taxpayers that are gamblers, teachers, nurses and military.

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