7 Useful Tips for Deducting Business Travel Expenses
In this article, you can find some tips on deducting business travel expenses. But first, we'll need to define the term "business travel" and help you figure out where your tax home is (the place you travel from).
What is Business Travel?
The IRS has a specific definition for business travel, for the purpose of determining whether you can deduct these travel expenses for business purposes. The IRS says business travel is travel away from your tax home that is "substantially longer than an ordinary day's work" and that requires you to sleep or rest while away from home.
You must also sleep away from home to be able to deduct these costs. The travel must also be "temporary" (lasting less than a year).
What is a Tax Home?
Your tax home is a concept set by the IRS to help determine whether a trip is deductible. Your tax home is defined by the IRS as your regular place of business; it's not the place where you live. If you have an office in your home, that's probably your tax home; if you have an office downtown somewhere, that's your tax home. If you work in several locations and you don't have one regular place of business, your tax home might be where you live.
After you have determined where your tax home is located (probably with your tax professional), this tax home can be used to determine whether your business travel expenses are deductible. If you have to travel away from your tax home overnight, or if you need time to "rest and sleep" during your travels, you can probably count your expenses during your travel as business deductions.
1. You may be able to deduct business travel costs on a combined business/personal trip.
If you are traveling within the U.S., your trip must be "entirely" business for you to take deductions for business travel costs. But if there is some "incidental" personal time, that's okay. For example, if you are traveling to Dallas for business and you spend an evening with family in the area, that's "incidental" to the main purpose of the trip.
The IRS says,
"The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip."
If part or all of your tip is outside the U.S., the IRS rules are different. The IRS has very specific rules for allocating personal and business time on international trips. See IRS publication 463 for more details.
2. You can use per diems to calculate business travel costs.
The term "per diem" means per day. Per diems are amounts that are considered reasonable for daily expenses while traveling, for meals and miscellaneous expenses. Per diem rates are set for U.S. and overseas travel, and rates differ depending on the area.
For example, per diem rates in larger U.S. cities are higher than for sections of the country outside larger metropolitan areas. Companies can set their own per diem rates, but most businesses use the per diem rates set by the U.S. government.
Per diem reimbursements are not taxable if they are greater If your employees receive more per diem than the maximum rate set by the General Services Administration, the excess is taxable to the employee.
Read more about per diem rates and the current IRS allowable per diem rates.
3. You can't deduct the cost of air travel for business if you used frequent flyer mile credits
If you used frequent flyer miles for air travel for a business trip, you can't deduct the cost as a business travel expense. For example, if you book a trip for $350 and you used frequent flyer miles for $300 of the cost, you can only deduct $50 as a business expense.
4. Not all charges on a hotel bill are deductible travel expenses.
The room charge and taxes are deductible, as are laundry expenses, but additional personal charges such as gym or fitness center fees, and fees for movies or games are not deductible.
You can deduct hotel charges for phone calls or use of a fax machine.
5. You may not be able to deduct the cost of bringing a spouse on a business trip
The cost of bringing a spouse, child, or other person along on a business trip is considered a personal expense and is not deductible.
But if you can prove that the other person is employed by the business and is performing substantial business-related tasks while on the trip (taking minutes at meetings or meeting with business clients) you may be able to deduct the cost of this person's travel.
6. You can deduct 50% of meal costs on a business trip.
Although it would seem reasonable that meal costs on a business trip should be fully deductible, they are not. Meal costs are deductible at 50%, like entertainment expenses. Read more about meals and entertainment expenses as part of business travel. The 50% limit also applies to taxes and tips for business meals, cover charges, rent for a hospitality suite, and parking at a sports arena.
7. You may be able to deduct the cost of a cruise for a business trip, with certain limits.
The cost of a cruise may be deductible, up to the current specified limit determined by the IRS (currently $2,000). You must also be able to show that the cruise was directly related to a business event, like a business meeting or board of directors meeting.
The IRS imposes specific additional strict requirements for deducting cruise travel as a business expense, for obvious reasons. See more details under "Cruise Ships" in IRS Publication 463.
Read more about deducting business travel expenses
For more information, see these IRS publications:
- Publication 17 - Tax Guide for individuals
- Tax Topic 511 - Business Travel
- Publication 463 - Travel, Entertainment, Gift, and Car Expenses
Disclaimer: This article and all articles on this site are offered for general information purposes, and are not intended to be tax or legal advice. Every business situation is unique, and taxes, laws, and regulations change frequently. Consult your tax and legal professionals before taking actions that could affect your business.