Business travel can be a substantial cost in many industries. Some jobs require infrequent travel for training or conferences, while others require employees to be on the road every week. Regardless, it is essential to understand the rules for maximizing tax deductions for business travel.
What kind of travel expenses can be deducted?
The IRS allows travel expenses to be deducted if they are ordinary and necessary. An ordinary expense is common and accepted in an industry. A necessary expense is helpful and appropriate for a business. Common deductible expenses include transportation, baggage fees, car rentals, car apps, taxis, shuttles, lodging, tips, and fees. A portion of qualified meals from restaurants on business trips can also be deducted if they are reasonable considering the circumstances and not lavish or extravagant. The deductible portion of most business meals has historically been 50%. However, Congress seems to like to change this on a whim as economic circumstances change, so it is worth checking the current rules each year.
When can I deduct travel expenses?
A taxpayer can deduct business travel expenses when they are away from both their personal residence and the location of their principal place of business (tax home). A taxpayer’s home is the city where they primarily reside and their family lives. A taxpayer’s tax home is the city where most of the business is conducted. When an individual is away from the location where they are at the most, they can become eligible for travel deductions.
Transportation expenses
If a trip is taken by plane, bus, or train, the cost of the ticket and the baggage fees are deductible. Tickets must be purchased to qualify; free tickets earned with rewards do not provide a deduction.
Vehicle rental costs for business are deductible. If traveling in a personal car, business miles driven can be deducted using the IRS standard mileage rate. The IRS standard mileage rate changes at least annually, and the current rate is available here. Tolls and parking costs may also be deducted.
Various travel fees
Examples of business transportation costs include fares for travel to and from:
- Taxpayers home and the airport or train station.
- Airport to your hotel.
- Hotel to the remote work location.
What if a portion of my business trip is spent on personal time?
If you remain in the U.S., your trip must be entirely business-related for you to deduct travel costs, but some “incidental” personal time is okay. In general, that means eight hours a day of work-related activity.
Taking personal time in the evenings is fine, and you can still take weekends off. But you cannot take a half-hour call from a theme park and call it a business trip.
There are special rules for traveling abroad. Your international travel may be considered business-related if you were outside the U.S. for more than a week and spent less than 25% of the time on personal activities. You can only deduct the business portion of getting to and from the destination if you don’t spend all your time on business activities during an international trip. You must allocate costs between your business and personal activities.
Substantiation of travel expenses
To substantiate business travel expenses, more than credit card statements must be provided. The individual receipts must be retained, and contemporaneous notes indicating the business purpose of each expense and the names of the people who attended business meals must be added to the receipts. If your business return is examined by the IRS, this area will receive stringent scrutiny.
