The IRS considers deductible travel expenses to be any ordinary and necessary expenses you incur while traveling away from home on business. To get tax deductions for travel expenses, the trip must have a business purpose and be temporary (less than one year) and you must be away from your tax home for a length of time that exceeds your usual work day or be away overnight to get sleep to fulfill the demands of your job while away.
Key Takeaways
- A qualifying business trip must take you away from home overnight long enough to require rest.
- Most expenses incurred during a qualifying business trip are deductible, including meals on days off.
- Partnerships, limited liability companies (LLCs), and corporations can directly pay or reimburse employees for business travel expenses and deduct them from their business returns.
- Self-employed business owners will deduct their travel expenses on Schedule C, while farmers will use Schedule F.
- Purely personal expenses on business trips, such as sightseeing, are nondeductible.
Step 1: Determine Your Trip Meets the Requirements of a Business Trip
A business trip for tax purposes is one that meets the following criteria:
- There must be a business purposes for the travel
- You are required to be away from your tax home
- The trip lasts overnight or a period long enough to require rest
- The trip is temporary
Business Purpose
Your trip must be an ordinary and necessary part of conducting your business for your expenses to be deductible. Below are some reasons you may decide to travel for business:
- Meeting with clients or customers: If you travel overnight to meet with clients or customers for business purposes, such as negotiating contracts, discussing projects, or providing consultations.
- Attending business conferences or seminars: If you travel to attend conferences, seminars, or trade shows that are relevant to your business activities, including acquiring new industry knowledge or networking with other professionals.
- Training or professional development: If you travel to attend training programs, workshops, or courses directly related to your business or profession.
- Conducting in-person meetings or negotiations: If you need to travel to have face-to-face meetings or negotiations with business partners, suppliers, or other stakeholders.
Tax Home
Your tax home is not your residence but rather your principal place of business activity including the entire city or general location of your business. So, your business trip cannot be in the general vicinity of your principal place of business for you to be away from home.
- More than one place of business: If you have more than one place where you conduct business regularly, then you must determine which your principal place of business is. To determine this, take into account the:
- Amount of time you spend at each location
- Degree of business activity in each area
- Relative significance of the financial return from each area
- No regular place of business: If, by the nature of the work, there is no regular or principal place of business, then your tax home will be the place where you regularly live and where you travel to different job sites to perform your service.
For example, a self-employed repair person may not have a regular place of business because they spend each workday at a different customer’s location.
Overnight Stay
Overnight stays for travel purposes do not specifically mean staying from evening to the next morning. Instead, overnight means that the trip is longer than a typical day’s work and long enough for you to require rest. Resting in your car is generally not enough, but if you have to get a hotel room, then the trip will qualify as overnight regardless of when you sleep.
Transportation vs travel expenses: Local transportation at your tax home can be deductible without an overnight stay—if there is a business reason for the transportation, such as driving from your office to visit a client. On a tangent, when you travel overnight, your transportation is deductible, and so are things like lodging, meals, and incidental expenses.
Temporary Travel
For purposes of business travel, a temporary stay is one that is expected to last for less than one year. Open-ended trips are not temporary.
However, say you initially anticipate that your trip will last less than one year, but it later becomes apparent that it will last more than one year. The trip is a deductible business trip up until the point in time it becomes apparent it will last more than one year.
The IRS will also consider a series of assignments to the same location, all for short periods, that together cover a long period to be an indefinite assignment. Any expenses you incur from this type of trip will not be deductible.
Step 2: Check the List of Business Expenses That Qualify for Deductions
Your travel expenses must be business-related—unless an exception applies—to qualify for a deduction. However, if you incur expenses that are purely for personal pleasure, they are nondeductible.
Here is a list of business travel expenses that can be deducted.
Round-trip Transportation To-and-From the Destination
Transportation for a round trip to and from your temporary work location is deductible—and it could be anything that gets you to the location, including via your personal car. If you use your personal car, your costs are calculated using either the actual expenses or the standard mileage rate.
In addition, you can deduct additional round trips to return to home when you are not working.
However, the deduction for the additional round trips is limited to the cost you would have incurred if you stayed at the temporary location. Those costs could include meals and lodging.
- Meals: You may deduct 50% of the cost of meals while on a business trip—as long as they are not lavish or extravagant:
- The business purpose of the meals is your business trip and are thus deductible—even if you eat alone.
- Meals on days off qualify.
- Travel to and from meals is deductible—even on your days off.
- The meals do not have to have a specific business purpose, such as meeting with a client.
- Lodging: You can deduct the costs of lodging while you are away on business.
- For longer trips, lodging can include monthly rentals.
- If you return home on your days off but keep the lodging at your travel location, then the lodging is still deductible if it is ordinary and necessary. For instance, the monthly rent of an apartment at your travel location would be deductible even if you return home on the weekends.
Transportation at the Destination
Once you arrive at your destination, you may need additional transportation to get around town—and these costs are deductible. The only exception would be if you travel to the destination for a purely personal reason like sightseeing on your day off.
Incidentals
Incidental expenses are minor expenditures associated with business travel. You can deduct the actual cost of any one of the following expenses:
- Shipping of baggage and sample or display material between your regular and temporary work locations
- Business seminar and registration fees
- Dry cleaning and laundry
- Business calls include business communications by fax machine and other communication devices
- Tips you pay for services related to any of these expenses
- Parking, tolls, and fees
- Any other similar ordinary and necessary expenses related to your business travel
When trips are both business and personal, the allocation of expenses varies based on the primary purpose of the trip. Determining the primary purpose of your journey requires you to evaluate the time spent on business vs personal activities.
Primarily Business Domestic Trips
If your trip is primarily for business purposes, then the round-trip transportation is 100% deductible and does not need to be allocated to the personal portion of your trip. However, all other expenses, like lodging and meals, must be allocated to personal expenses for days where there was no business reason for staying.
For example, if your seminar ends on Friday and you stay until Sunday, then the lodging and meals for Saturday and Sunday are nondeductible.
Primarily Personal Domestic Trips
If the primary purpose of your trip is personal, then none of the round-trip expenses are deductible. However, you can deduct the business portion of meals, lodging, and local transportation that was incurred for a business purpose.
Let’s say you stay a couple of days after your family vacation to meet with a client. The lodging and meals for those extra days are deductible.
Business Foreign Trips
The allocation of travel expenses on foreign trips is slightly different from the rules above. Round-trip transportation for foreign trips must be allocated to business and personal based on the number of business vs personal days on the trip. This is different from the “all or nothing” rule for the cost of domestic round-trip travel.
If your spouse joins you on a business trip, you usually cannot deduct any of their expenses. However, if your spouse’s trip satisfies a business purpose, then expenses must be otherwise deductible by the spouse.
Generally, for the travel costs of a spouse, dependent, or any other person to be tax-deductible, they must work for the business or be a co-owner.
Frequently Asked Questions (FAQs)
Yes, roundtrip travel is 100% tax deductible as long as the primary purpose of the trip is business. Once at your destination, expenses must be allocated between business and personal. However, all meals are deductible as long as the reason for your continued stay is business.
Yes, you can generally deduct travel expenses for your employees as long as the expenses are ordinary and necessary, directly related to your business, and properly substantiated.
Yes, there are some such as business travel on a cruise ship, where the expense is limited to $2,000 per year. Also, your expenses are limited to the non-lavish or extravagant cost of the trip, so you may want to be careful before booking a 5-star hotel.
Bottom Line
Travel expenses are ordinary and necessary expenses you incur while you are temporarily away from home, so these expenses cannot be lavish in nature. To determine if a travel expense is deductible, it must be directly related to your trade or business.
When it comes to travel expenses, having well-organized records makes it much simpler to complete your tax return. Keep track of any records that may be used to substantiate a deduction, such as receipts, canceled checks, and other documentation.
