Traveling for business is a common aspect of many work environments, and while it can be enjoyable, it often becomes costly.
Even a short trip requires transport, accommodation, and navigating an area you might be unfamiliar with.
But if the travel is a work necessity, you might be able to benefit from some tax deductions.
Many of the costs associated with business travel are tax-deductible. This allows you to claim the necessary and unavoidable expenses incurred over the course of a trip.
However, the IRS has strict rules regarding necessary expenses, and ignoring these can result in no harsh penalties.
In this guide, we’ll cover how the IRS defines business travel, and the expenses that can be deducted over the course of your trip.
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What Are Business Travel Expenses?
A business travel expense is travel necessitated by your workplace, away from your tax home, and for a period of time longer than a day’s work.
The travel must include an overnight stay or rest away from home, but it must also be a temporary trip.
Business travel expenses can’t be claimed if the trip is longer than a year.
Travel expenses can’t be claimed for any travel that you undertake for personal reasons. Your travel must be necessary for business reasons — mostly.
The IRS requires the time away to be spent primarily on business, but a few days vacation won’t necessarily impede your ability to claim the expense.
Five days working and two days vacation is allowed, and the travel can be tax-deductible. It becomes non-deductible if the balance swings the other way.
For example, spending four days as a tourist, and three days attending to business. These rules are relaxed slightly if you’re traveling outside the USA.
Business travel expenses also need to be, as defined by the IRS, “ordinary and necessary”.
No extravagant spending, and no trips to Hawaii that could have been a phone call. Claiming lavish expenses can result in an investigation and penalties.
Finally, to qualify as business travel, it needs to be planned in advance. Create an itinerary, and share it with others in the workplace.
You won’t be able to deduct a trip just because you answered some emails on a family vacation.
Tax Homes And Business Travel Expenses
The IRS defines business travel as travel that takes you away from your tax home.
This can confuse the matter, as your tax home isn’t always the same as your personal home. Your tax home is the general area or city surrounding your primary place of business.
Your tax home might include your personal home if you work from home, or if you work and live in the same city.
You must understand where your tax home is to understand what business travel expenses may be considered deductible.
If you have a family home in one city where you stay at weekends, and work in another city during the week staying in a hotel, the travel isn’t business travel.
This is because you only leave your tax home, where you work, for personal reasons.
Is My Daily Commute Tax Deductible?
No matter how far you might travel for your daily commute, the cost isn’t tax-deductible. So, even if you take a plane to work every morning, you can’t claim it back on your taxes.
The distance doesn’t matter, as you won’t be traveling for work away from your tax home. You also can’t claim for any parking fees that you might incur on your daily commute.
Tax-Deductible Business Travel Expenses
If your travel does qualify as business travel, then there are several areas that are tax-deductible.
Transport
Travel from your home to your business destination is 100% tax-deductible. The cost of travel via airplane, train, or bus is deductible.
Travel by rental cars and personal vehicles are also tax-deductible.
Travel when at your destination is also tax-deductible. If you use taxis or public transport to get to your accommodation, or to your work location, this is deductible.
You can also deduct the expenses of using your own vehicle, such as mileage, tolls, and parking fees. Similarly, you can deduct for business-related travel using a rental car.
Baggage is also considered a tax-deductible expense.
Lodging
Lodging and accommodation is tax-deductible. It’s also possible to claim dry cleaning and laundry expenses.
If you have non-working days within your trip, the accommodation expense is potentially deductible for these nights.
However, an overnight stay must be necessary. If you have meetings Tuesday and Thursday, your Wednesday hotel stay is deductible.
But if you stick around for Friday and Saturday, this is considered personal travel.
While laundry and dry cleaning are tax-deductible, not all additional expenses will be. Make sure to get an itemized bill when you check out.
Meals
Food and drink deductions are typically capped at 50%, unless the meals are particularly expensive.
A standard meal allowance is generally the easiest way to sort out food related tax-deductions, and the allowance varies depending on the destination.
Meals during travel are also 50% tax-deductible, presuming they’re considered necessary.
Stopping for food on a long journey is fine, but if you grab a bite every 15 minutes, you won’t be able to claim.
Business Calls
Any calls you make relating to the business while on your trip are deductible. Other work related communications, such as faxes, are also considered deductible.
Anything Else?
Any tips paid for these necessary services are tax-deductible, as are some other related expenses. For example, hiring a computer for business use.
These additional expenses must be related to your work, and they must be considered a necessary part of travel.
It might seem tempting to fudge the details, but trying to claim your cocktail making class as a business meal is likely to get the entire trip investigated.
Are Travel Expenses Deductible For Self-Employed Workers?
Freelancers and the self-employed are eligible for business travel tax-deductions. This includes all the categories covered above.
Final Thoughts
Business travel can be an enjoyable perk, but it’s also costly and time-consuming.
Keeping detailed records of your expenses, and a clear itinerary, makes it easier to apply for business travel tax-deductions.
