Do you travel for your own business? Do you have employees who travel? Make sure you know which travel expenses are deductible - and which are not.
How "Business Travel" Is Determined
Business travel is a specific term determined by the IRS to describe travel away from your tax home. which is described by the IRS as "the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home." You are traveling away from home if your duties require you to be away from the general area of your tax home for a time that is at is "substantially longer than an ordinary day's work" and that requires you to sleep or rest while away from home.
Travel for Work Assignments
You must sleep away from home to be able to deduct these costs as travel expenses The travel must also be "temporary" (lasting less than a year).
You can't deduct travel expenses for an indefinite work assignment (including any work assignment of more than a year). You also can't deduct travel expenses if you expect to work at that location for more than a year.
Deducting Lodging Expenses
Long-term assignments at one location aren't considered as "travel," but employee lodging expenses at work locations, like renting an apartment while working at an extended assignment are deductible business expenses.
What You Can Deduct for Business Travel
You can deduct costs to travel by train, bus, or airplane between your tax home and your business destination. For travel by ship, see the section on cruise ships below.
Transportation: You can deduct the cost of travel by plane, train, bus, or car between your home and your business destination. You can't deduct the cost of a free ticket.
Taxi, commuter bus, airport limousine: You can deduct costs to take you from an airport to your hotel or to a business location.
Baggage and shipping: Costs for baggage delivery or for shipping business materials between your regular work location or tax home and a temporary work location are deductible.
Lodging and meals: You can deduct expenses for lodging and meals while away from home on a business assignment. You can submit actual expenses or use per diem rates, as determined by the IRS.
Other expenses; You can deduct other costs while traveling for business:
- Dry cleaning and laundry
- Business phone calls and faxes (not personal calls)
- Tips for allowable expenses.
- Other similar business expenses while traveling like computer rental
Business meals while traveling are deductible expenses, at 50% in most cases, but entertainment expenses are no longer deductible in any business situation.
Deductions for Special Types of Travel
Conventions and Trade Shows: If you travel to a convention or trade show, you may need to show that the convention is directly related to or associated with your business. If you have a sales booth at the convention, that would qualify. If you are a delegate to a convention, the purpose of the convention must relate to your business. Travel to and participation in conventions for political, investment, social, or other purposes is not deductible.
Cruises: Cost of travel on cruise ships, even for direct or associated business purposes, is limited. The IRS sets daily limits on luxury water travel each year, depending on the dates (months) of the cruise, based on an amount twice the allowable federal per diem rate for that travel period. IRS Be prepared to provide documentation that the cruise activities were related to business purpose.
Documenting Travel Expenses
The most important part of the process of deducting travel expenses is to save all of your receipts. You don't have to save paper copies, but you should be able to pull out a separate receipt (not just a line item on a credit card) to show (1) date (2) expense details (3) amount spent and (4) business purposes. Be as specific as possible.
Don't forget that travel expenses must be, as stated by the IRS: "ordinary and necessary expenses incurred while carrying on your trade or business."
Where to Show These Expenses
- For sole proprietors and single-member LLCs, show these expenses in the "Expenses" section of Schedule C.
- For partnerships and multiple-member LLCs, show these expenses in the "Deductions" section of Form 1065.
- For corporations, show these expenses in the "Deductions" section of Form 1120.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.