Many business owners dream of spending winters in Florida and summers in Massachusetts while maximizing their tax benefits. With proper planning, it’s possible to deduct travel expenses, housing costs, and business expenses between two locations. The case of Edward Andrews serves as an important lesson in establishing your tax home and ensuring your deductions comply with tax law.
The Andrews Case: A Tax Planning Example
Edward Andrews successfully ran two separate businesses:
- A pool construction business in Lynnfield, Massachusetts (May–October)
- A horse racing and breeding business in Lighthouse Point, Florida (November–April)
Rather than staying in hotels in Florida, he purchased a home, claimed it as 100% business use, and depreciated both the house and furniture as business expenses. He also divided his travel expenses and home costs into three categories:
- Personal deductions (mortgage interest and taxes on Schedule A)
- Business deductions (horse racing business on Schedule C)
- Employee business expenses (pool construction business on Form 2106—now eliminated under the Tax Cuts and Jobs Act)
His strategy raised critical questions about how the IRS determines a tax home and which travel expenses are deductible.
Key Tax Questions and Court Rulings
1. Could Mr. Andrews Deduct All His Costs for Living in Florida?
No. He needed to establish a primary tax home for his deductions to be valid.
2. Where Was His Tax Home?
The IRS argued that he had two tax homes, making his travel expenses non-deductible. However, the First Circuit Court of Appeals disagreed and ruled that a taxpayer can have only one tax home.
3. Did Having Two Residences Make Travel Non-Deductible?
No. Since one home was designated as his non-tax home, he could deduct travel expenses between his tax home and his secondary residence.
4. What Travel and Living Expenses Were Deductible?
The appeals court ruled that:
- Travel between his tax home and his second residence was deductible.
- Living expenses in the non-tax home were deductible as business expenses while traveling.
- Business use of the Florida home was deductible.
How to Establish Your Tax Home
Your tax home is determined by your major post of duty, which is assessed using three factors:
- Time spent at each location (this is the most important factor)
- Business activity in each location
- Income earned at each location
For example, if you spend more time in Massachusetts and earn more income there, Massachusetts would be your tax home, making travel to Florida deductible.
However, if you primarily conduct business in Florida, then Florida could be your tax home, making travel back to Massachusetts deductible instead.
Key Tax Planning Strategies
1. Avoid Claiming Employee Business Expenses
The Tax Cuts and Jobs Act (2018-2025) eliminated personal deductions for employee business expenses. Instead:
- Have your corporation reimburse you for business-related travel.
- For sole proprietorships, claim business expenses directly on Schedule C.
2. Maintain Proper Travel Records
To ensure compliance with IRS rules, keep detailed records of where you were, why you were there, and how expenses were business-related.
- Document all travel days (location and business purpose)
- Keep receipts for expenses over $75 (and all lodging costs, regardless of amount)
- Track travel expenses weekly or more frequently
3. Plan for Multiple Business Locations
If you operate in multiple states, you can structure your business as:
- Separate businesses in each state (with one main tax home)
- One business with branch locations
Having two legitimate business locations helps substantiate deductions for travel, lodging, and meals.
Takeaways
- You can establish a tax-deductible winter home in Florida if your primary tax home is in another state.
- Your tax home is based on where you conduct most of your business, determined by time spent, activity, and income earned.
- Travel between your tax home and your secondary residence can be deductible if you are conducting business in both locations.
- Maintain detailed travel records and avoid employee business expenses by using corporate reimbursements.
- Structure your business properly to maximize deductions while ensuring compliance with tax laws.
By following these strategies, you can optimize your tax benefits while enjoying seasonal living in different states.
