Wondering what you can deduct as a business expense when you travel?
Excellent question.
According to the IRS, travel expenses are the “ordinary and necessary” expenses incurred when traveling away from home for your business, profession, or job.
No surprise, the IRS has strict rules here: No lavish expenses allowed! They must be considered ordinary and necessary to your business travel.
In other words, you’ve got to be reasonable. The good news is that the IRS is willing to be reasonable in return.
For example, you can fly first class and submit the full cost of the fare as an expense. You can even dine in an upscale restaurant and the IRS will likely allow the deduction, as long as it’s legit.
If contemplating any of this makes you want to put your head in the sand and just “wing it”… that would be a mistake.
Learn the rules. Follow the rules.
Especially Rule Number One…
Rule Number One: Don’t mess with the IRS!
Then there’s Rule Number Two, which may seem obvious, but it needs to be emphasized, especially in light of Rule Number One…
Rule Number Two: Travel expenses must be BUSINESS RELATED!
Pleasure trips are not “business related” just because you pulled out your laptop on the beach in Cabo. However, you absolutely can deduct business expenses if your trip is a combination of bona fide business activities and pleasure time. But, in order to claim travel fares, the purpose of your trip must be primarily for business. The IRS has eyes and it’s on the lookout for those who try to ‘beat the system.’
And, while this may also sound obvious, you must actually be “away from home” in order to claim travel expenses.
The IRS has two criteria for the “away from home” qualification:
- Your duties require you to be away from the general area of your “tax home” substantially longer than an ordinary day’s work. The IRS defines tax home as “your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.”
- You need to sleep or rest to meet the demands of your work while away from home. The rest requirement can’t be met by merely pulling over to the side of the road and taking a catnap in your car.
Also, you can only deduct travel expenses if you are leaving home to pursue opportunities for an existing business. That means if you’re traveling to pursue possible business opportunities, those expenses would not be deductible as travel expenses but may be deductible as start up costs that can be amortized over the next 15 years as deductions.
Here’s an itemized list of possible travel expenses you may be able claim:
- Meals (50% of the cost) but only if your trip is long enough to require that you stop to sleep or rest.
- Travel fares (air, bus, rail)
- Baggage fees
- Hotel
- Vehicles, including gas, oil, parking, tolls
- Taxi fares and other local transportation and shuttle costs
- Tips (but only for eligible expenses)
- Laundry/dry cleaning
- Cell phone and Internet fees
Thinking of taking someone with you and claiming them as an expense?
In order to be able to deduct travel expenses for another person they must be an employee of your business and their attendance must benefit the business.