You can plan your tax-deductible business life to avoid cold winters and hot summers. Spend a moment examining the following four short paragraphs that contain the basic facts from the Andrews case.
For six months of the year, from May through October, Edward Andrews lived in Lynnfield, Massachusetts, where he owned and operated Andrews Gunite Co., Inc., a successful pool construction business. During the other six months, Mr. Andrews lived in Lighthouse Point, Florida, where he owned and operated a sole proprietorship engaged in successful horse racing and breeding operations. In addition, he, his brother, and his son owned a successful Florida-based pool construction corporation from which Mr. Andrews took no salary, but where he did assist with operations.
Instead of renting hotel rooms while in Florida, Mr. Andrews purchased a home, claimed 100 percent business use of the Florida home, and depreciated the house and furniture as business expenses on his Schedule C for his horse racing and breeding business. Mr. Andrews then allocated his other travel expenses and costs of owning and operating this house in Florida on his individual income tax return as
- personal deductions on his Schedule A for a portion of the mortgage interest and taxes,
- business deductions on his Schedule C for the horse racing and breeding business, and
- employee business expenses on IRS Form 2106 for the pool construction business.
(Tax reform under the Tax Cuts and Jobs Act eliminates employee business expense deductions for tax years 2018 through 2025—so Mr. Andrews would replace his old strategy with a corporate reimbursement of employee business expenses strategy.)
Just as Mr. Andrews did, you can tax plan your life to spend your winters in one state and your summers in a different state. In this scenario, your tax-deductible home takes the place of your staying in hotels. The other home is likely your principal residence located near your tax home.
Your travel expenses between the homes are deductible because you do business in both places. You also deduct your meals and other living costs while at the deductible travel destination. You can have separate businesses in each state or a branch business in the second state.