Final answer:
Taxpayers who are away from their tax home overnight on business can deduct transportation, lodging, meals, and other ordinary and necessary expenses. These deductions must not be lavish or extravagant, and records should be kept to substantiate them.
Step-by-step explanation:
When a taxpayer is "away from tax home" overnight on business, they may deduct various expenses related to this trip. A "tax home" is generally considered the city or area where one's main place of business or work is located, regardless of where the individual lives. If they need to travel away from this area for business purposes and are required to stay overnight, they are entitled to deduct a number of associated costs.
The types of expenses that can be deducted include, but are not limited to, the costs of transportation to and from the destination, such as plane or train tickets; the use of one's car for business purposes; lodging expenses; meals during the trip; shipping of baggage necessary for the business activity; and expenses related to operating and maintaining a car while at the business location, like car rentals and gasoline. It's important to note that these expenses must be ordinary and necessary for the conduct of the business and cannot be lavish or extravagant.
Non-deductible expenses would include those that are primarily for personal entertainment or leisure. To ensure deductibility, it is advised that individuals keep thorough records of their expenses, including receipts and a log of the business activities conducted. The deductions must be substantiated in order to withstand scrutiny from tax authorities.
To make these concepts more relatable, it's interesting to note how spending practices can vary based on one's professional context. For instance, professional athletes might spend only a portion of their income in the city where they play, similar to how a foreign company that has sold imported goods in the U.S. may spend its earnings abroad. Just as the athletes' spending has implications for the local economy, so does the foreign firm's spending impact the balance of trade.