For the most part, business travel expenses are tax deductible, meaning that you could lower the amount of taxes you need to pay.
When it comes to tax-write offs for travel, the IRS provides specific guidelines around what you can claim. Mainly, your trip needs to be primarily for business purposes. However, there is some wiggle room to get a little vacation time in during a business trip that qualifies as a travel expense.
As a hard-working business owner, it’s good to carve out some time for meaningful rest and relaxation. We can almost guarantee that your business will be all the better for it.
Obviously, we’re not advocating for exploiting the tax code. As long as a trip is primarily for business, you could claim it as a business travel expense (within reason) and save some money on taxes. Here’s how to follow the rules while saving a bundle on your tax return.
What is considered a business trip?
We’ve already covered that the trip needs to be for your business, but what does that mean exactly? For a business trip to qualify for a tax deduction, it needs to meet these criteria. You must:
1. Travel away from home
The trip must be somewhere other than your “tax home.” In other words, you must leave the location where your business is based for longer than a normal workday. Specifically, you will be staying overnight somewhere else.
2. Spend the majority of the time on business
The IRS looks at what you do for each day of your trip. To qualify as business-related, you need to spend more days doing work-related activities, such as meeting with customers.
The days you spend traveling to and from the destination count as business days, so meeting this requirement is easier than it seems. For example, you could fly to Honolulu on Monday, attend a conference Tuesday through Thursday, hit the beach on Friday and Saturday, and fly home Sunday. That would be considered five workdays and two vacation days.
3. Plan in advance
Write out a detailed itinerary and what you’ll be doing each day. Get it time-stamped well in advance of your departure. For example, you could email it to a colleague.
4. Ordinary and necessary
The IRS states that business travel must be for “ordinary and necessary” activities. Ordinary means the expenses are usual for businesses in your industry. Necessary means you can’t run your business without the expense. Your expenses must meet both of these requirements to be deductible.
For example, it may be necessary to rent a car during your stay, but it’s not necessary to rent a luxury class one.
There’s a lot of room for interpretation here. But, carefully review the requirements, especially since the IRS penalties can be substantial.
The cost of travel and attendance at conferences is considered tax-deductible as long as the event is related to your business. This includes training and meetings meant to improve skills related to your business. For example, if you own a design agency, a web design conference is tax deductible.
Expenses related to trade shows follow the same rules as other conventions.
Different Rules for International Trips
You may have even more opportunities for vacation deductions if you’re traveling internationally.
As before, your trip needs to be primarily for business purposes. This may limit you in terms of destination, but it also might give you a chance to see a part of the world you might not see otherwise.
The rules for these types of deductions are also a bit less stringent than the regulations for other trips.
International trips must meet the following criteria to qualify as a business travel expense.
- Spend 25% of your days doing business
- If you spend less than 25% of your time working, you can still take deductions, but only as a percentage of the total cost. For example, if you spend 1 day out of a 5-day trip to Italy on business, that’s 20% of your time away and you can deduct 20% of your airfare.
What is considered a business travel expense?
When you’re traveling, there is a long list of expenses that are deductible that you would not be able to write off when working from home. This list may include:
- Baggage fees
These are common expenses that you can write off. Keep in mind that some of them can be written off in their entirety, while others can only be written off partially.
In all cases, it’s best to save receipts and records, which you can do with a receipt scanner app. Not only will this shield you in the event of an audit, but it can make it easier for you to keep track of your expenses when filing your income taxes. In the event of an audit, the IRS will require you to provide documentation of expenses you have written off.
If you can book your lodging and transportation online, you’ll already have written documentation of some of these expenses, and restaurant receipts can easily account for the rest.
Numerous business travel expenses are deductible. You can deduct the cost of airfare including both the cost of the ticket and any associated fees, such as baggage fees.
Once you’ve landed, you can also deduct the cost of ground transportation, such as trains, buses, and taxis.
If you drive your car, you can deduct either the actual cost of gas and oil or the standard mileage rate. You or your accountant can decide which deduction is more beneficial to you. Also, you can deduct the cost of parking and tolls.
When traveling for business, many lodging expenses, including room service, can be tax deductions.
However, there are some restrictions. For example, if you are traveling for leisure as well as business, only a portion of your lodging expenses may be deducted.
Additionally, your deduction may be limited if your lodging costs exceed a certain amount since expenses must be considered reasonable and ordinary.
In general, any meal that is considered essential to the conduct of business can be deducted. This includes both business meetings and meals taken during extended business trips.
There are a few restrictions to keep in mind when deducting meal expenses. First, the meal must take place during business travel. Additionally, only 50% of the cost of the meal can be deducted in most years. Although for 2022, you are allowed to deduct 100% of meals eaten in restaurants.
Again, receipts or other documentation must be kept to substantiate the deduction.
Shipping or Baggage
Shipping and baggage costs are deductible during business trips. If you have to ship materials or equipment for your business, you can deduct the cost of shipping. This also includes the cost of packaging materials.
If you have to check bags when you travel, you can deduct the cost of the baggage fee. You can also deduct the cost of any other related fees, such as overweight baggage fees. Keep in mind that you can only deduct the portion of these costs that is related to business travel. So if you travel for both business and personal reasons, you can only deduct the portion of the costs that are attributable to the business portion of your trip.
Dry Cleaning and Laundry
When traveling for business, you may be able to deduct the cost of dry cleaning your clothes.
To be eligible for this deduction, you must maintain records of your expenses and submit them to your employer. Additionally, your employer must be able to verify that the expenses were incurred while you were on business travel.
If you are self-employed, you can deduct the cost of dry cleaning as a business expense on your taxes. Whether you are an employee or self-employed, the cost of dry cleaning can be deductible for business travel if you maintain accurate records and meet the required standards.
Wi-Fi and Cell Phone
You can also deduct the cost of Wi-Fi and cell phone services. This can be a significant deduction, especially if you frequently travel for business. For flights with paid Wi-Fi service, you can write off the charge if you are using the service for business purposes.
How much can you deduct for travel expenses?
We’ve listed the expenses that are deductible for business travel, but the IRS places limitations on some of the expenses.
For example, the standard mileage rate changes each year based on market conditions such as the price of repairs and gas. The past several years have seen changes in the deduction for entertainment expenses and meals eaten in restaurants.
|Travel||100% of air, train, bus, rideshare, or other transportation fares as well as rental cars|
|Lodging||100% of the days you spend working|
|Meals||50% of business meals are tax-deductible, but in 2022, the IRS temporarily increased the deduction to 100% for meals eaten in a restaurant.|
|Entertainment||Prior to 2021, entertainment expenses were 50% deductible. Starting in 2021, these expenses are no longer deductible as business expenses.|
When Your Trip Doesn’t Quite Qualify as Business
You may be spending the majority of your days on vacation, and just happen to meet with a client while you’re there. Or maybe you didn’t get the necessary documentation to support your claim that it was a business trip.
You can still write off 50% of for meals and entertainment you spent for business purposes.
However, you can’t deduct any travel or lodging costs.
Granted, this still may mean that the trip as a whole is more affordable since you’ll be deducting some of the expenses, but that doesn’t mean you’ll get the full benefit of a longer stay.
Several expenses are not deductible during a business trip. You cannot deduct any personal expenses you incur during the trip, including souvenirs, gifts for your family, or entertainment expenses unrelated to your business. If your friends or family travel along with you, none of their expenses are deductible.
When Family or Friends Come Along
For many entrepreneurs, traveling with family or friends simply makes sense. After all, if you could use some leisure time away, chances are your spouse is in the same boat. Tying this away time to your business trip can help the whole family save money, and if you have kids, this can be a great way to expose them to a new destination or a new cultural experience.
But before you book that trip to Walt Disney World, there are a few things you need to understand when it comes to friends and family joining you.
You can’t directly deduct any of their expenses. However, in many cases, they can ride on your coattails for less than the full cost.
The following rules apply to deductions when traveling with guests:
- Car Rental: As long as it’s the same “ordinary and necessary” car you would have rented if you were alone, nothing says there can’t be other people in the car.
- Lodging: You can deduct the portion of hotel costs that you would have paid for a single room. For example, if you would have spent on a $100 single room when traveling alone but you’re in a $150 double with your significant other, you can still write off $100.
Travel Expenses for Employees
When an employee is required to travel for business purposes, their employer will often reimburse them for some or all of their travel expenses.
The most common way to reimburse employees for travel expenses is through a per diem allowance, which reimburses the employee for each day of travel at a set rate. Even if you use a per diem allowance for meals, you still must track the business purpose.
Employers can choose to reimburse employees for their actual expenses. The employee would submit receipts for expenses incurred, including travel expenses. If the employee is driving, employers will often reimburse employees using the standard mileage rate (which changes each year) while using exact amounts for other expenses.
Regardless of the method used, it is important for employers to track and claim employee travel expenses to deduct them from their taxes. The IRS may ask for documentation for any employee travel expenses in the event of an audit.
Employers should be sure to provide clear guidelines to their employees regarding what expenses are eligible for reimbursement. By taking these steps, they can ensure that they are effectively reimbursing their employees for business travel while also reducing their tax liability.
How Xendoo can help you with taxes
Need more help with deducting your vacation or business travel expenses? Our online bookkeeping and accounting team is here to answer any questions you have and file your tax return correctly so that you get every write-off you can. You can also view our small business tax deductions checklist for more opportunities to save money on your taxes.