Dear Tax Talk,
I am an engineering contractor; I get paid my base pay plus a per diem. I have been told that at the end of the first year, the per diem will also be taxed. I read in a couple of places that even after the end of the first year, I will be eligible for per diem because I have a house out of state. Or I can take a break for a week or two and then it will be counted as a new contract year/term. I looked at the IRS Web site and the guidelines are not clearly laid out for this.-- Jay
Dear Jay,
When you're looking at travel costs, you start with the premise that everyone has a "tax home." When you travel away from your tax home on a temporary basis, your travel expenses are deductible or, if reimbursed as in your case, not taxable. Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.
If your assignment or job away from your main place of work is temporary, your tax home does not change. You are considered to be away from home for the whole period you are away from your main place of work. You can deduct your travel expenses if they otherwise qualify for deduction. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less.
