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, and 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. It is defined by the IRS as the entire city or general area where your regular place of business is located 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.
On the other hand, trying to turn a personal trip into a business trip won't work unless the trip is substantially for business purposes. 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. Your international travel may be considered business-related if you were outside the U.S. for more than a week and less than 25% of the time was spent on personal activities.
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 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.
3) International Business Travel Has Different Rules
if your entire trip is outside the U.S.and you spend the entire time on business activities, you can deduct the costs of the entire trip. Even if you didn't spend your entire time on business activities, the trip is considered as a business expense, but only if you didn't have "substantial control" over the itinerary. For example, an employee traveling as a work requirement doesn't have control over the trip, but the business owner would.
But if your trip takes you outside the U.S. for more than a week, the trip may be considered entirely for business if you spend less than 25% of the time on personal activities.
If you don't spend all your time on business activities during an international trip, you can only deduct the business portion of getting to and from the destination. You must allocate costs between business and personal activities,
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, and you can deduct tips.
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 people along on a business trip is considered a personal expense and is not deductible. But you may be able to deduct travel expenses for your spouse if:
- The person is an employee
- They have a bona fire business purpose for their travel
- The person would otherwise be allowed to deduct travel expenses
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
You can deduct the cost of meals while you are traveling, but entertainment expenses are no longer deductible. You also can't deduct "lavish or extravagant" meal costs. Meal costs are deductible at 50%, and the 50% limit also applies to taxes and tips for business meals. To take the meal cost deduction, you can use either actual costs or a standard meal allowance, remembering the 50% limit.
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.
This article is for general information; all of these tax deduction regulations are complicated, and there are many qualifications and exceptions. See IRS Publication 463 for details on each of these travel-related subjects, and consult your tax and legal professionals before taking actions that could affect your business.