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Mailbag: Traveling Away From the “Tax Home”

Taxpayer asks:

I have been following your articles on poker tax on Pokerfuse.com. I was wondering if you can clarify for me on the article about traveling expenses. What is the difference between the tax home being a residence and the tax home being the most frequented local casino in terms of deductible traveling expenses? Like if the tax home is the primary residence, then does that mean you can deduct traveling expenses and half of food/entertainment to all the local casinos since that’s traveling away from your tax home? I’m a little unsure of the definition of “traveling away from” the tax home.

For some context, check out the article the taxpayer is referring to here.

Under section 162(a) of the Internal Revenue Code, a taxpayer may deduct ordinary and necessary business expenses incurred in connection with the taxpayer’s trade or business. Travel expenses are deductible under 162(a) if they are the ordinary and necessary expenses of traveling away from the “tax home” for one’s business, profession, or job.

There are two definitions we need to explore: (1) “traveling away from” and (2) “tax home.”

Traveling Away From Home

A taxpayer is traveling away from the tax home if:

  • The duties require the taxpayer to be away from the general area of the tax home substantially longer than an ordinary day’s work; AND
  • The taxpayer needs sleep or rest to meet the demands of the work while away from home.

Keep in mind the rest requirement is not satisfied by merely napping in the car. The taxpayer need not be away from the tax home for a whole day to qualify, however, so long as relief from duty is long enough to get necessary rest.

So a professional gambler who travels away from the tax home to a casino to play in a multiple day poker tournament appears to meet the test. If, however, the pro drives an hour to a casino, plays poker for three hours, and then drives home, the travel expenses incurred for that trip may not be deductible.

Tax Home

In general, the tax home is the taxpayer’s regular place of business. If, however, the taxpayer does not have a regular place of business because of the nature of the work, then the tax home may be where the taxpayer regularly lives.

Ultimately, ascertaining the “tax home,” if any, depends on the particular facts and circumstances. If one does not have a regular or main place of business, IRS Publication 463 says to apply the following three factors to evaluate whether the tax home is where the taxpayer regularly lives:

  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.

The publication states if all three factors are met, the tax home is the home where one regularly lives. If only two factors are met, it depends on all the facts and circumstances. If only one factor is met, the taxpayer is considered an itinerant and cannot deduct travel expenses.

A professional gambler may or may not meet all three factors.

On the one hand, a pro may do business at home by studying the game and reading instructional material, duplicate living expenses by frequently paying for overnight lodging when traveling throughout the country to play poker, and return to the residence often during the year. Under those facts, it seems likely the pro meets all three factors.

On the other hand, a pro may not have a primary residence at all. Instead, he may stay in one city for three months, another city for four, and a third city for five; he sometimes stays on friend’s couches, other times stays at hotels or at casinos. This pro almost certainly would be considered an itinerant.

Then we have all of the in-between cases. Each taxpayer’s situation is different. A prudent move is to consult a tax professional to see how your particular facts and circumstances apply.

  1. JT
    April 6th, 2012 at 17:13 | #1

    So if I meet all three factors making my tax home in the US, and I spent several months abroad playing online poker, I can deduct my rent and take the standard daily allowance for meals for the time I spent abroad, correct? The meal allowance can add up to a lot, more than $100/day in my city.

    • April 7th, 2012 at 11:35 | #2

      If you are referring to the rent for a dwelling abroad, then maybe. Rent for the domestic dwelling, if considered the “tax home,” would not be considered a travel expense. A portion of the domestic dwelling may qualify for the home office deduction, however.

      I’ll add that poker players who spend several months abroad may qualify for the foreign earned income exclusion, which I discuss in greater detail here.

      • JT
        April 7th, 2012 at 20:42 | #3

        Yes, I was referring to rent for the dwelling abroad, and taking the standard meal allowance for the days I was physically out of the country. I kept my main home in the US and traveled back and forth a few times during that period.

        In my case it was temporary travel for about 4 months so the foreign earned income exclusion wouldn’t apply.

        Anyway, I thought this may be an issue of general interest to your readers since the rent and meal expenses combined can be significant. There are probably many poker players in the same boat.

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