Are Travel Expenses Tax Deductible?

By Mark Tan
In November 25, 2019
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Good news: most of the regular costs of business travel are tax deductible.

Even better news: as long as the trip is primarily for business, you can tack on a few vacation days and still deduct the trip from your taxes (in good conscience).

Even though we advise against exploiting this deduction, we do want you to understand how to leverage the process to save on your taxes, and get some R&R while you’re at it.

Follow the steps in this guide to exactly what qualifies as a travel expense, and how to not cross the line on the charges, or choosing to spend less while travelling, say you go away for a week (seven days) at one of the caravan parks NSW. You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as business trip.

The travel needs to qualify as a “business trip”

Unfortunately, you can’t just jump on the next plane to the Bahamas and write the trip off as one giant business expense. To write off travel expenses, the IRS requires that the primary purpose of the trip needs to be for business.

Here’s how to make sure your travel qualifies as a business trip.

1. You need to leave your tax home

Your tax home is the locale where your business is based. Traveling for work isn’t technically a “business trip” until you leave your tax home for longer than a normal work day, with the intention of doing business in another location.

2. Your trip must consist “mostly” of business

The IRS measures your time away in days. For a getaway to qualify as a business trip, you need to spend the majority of your trip doing business.

For example, say you go away for a week (seven days). You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as business trip.

But if you spend three days meeting with clients, and four days on the beach? That’s a vacation. Luckily, the days that you travel to and from your location are counted as work days.

3. The trip needs to be an “ordinary and necessary” expense

“Ordinary and necessary” is a term used by the IRS to designate expenses that are “ordinary” for a business, given the industry it’s in, and “necessary” for the sake of carrying out business activities.

If there are two virtually identical conferences taking place—one in Honolulu, the other in your hometown—you can’t write off an all-expense-paid trip to Hawaii.

Likewise, if you need to rent a car to get around, you’ll have trouble writing off the cost of a Range Rover if a Toyota Camry will get you there just as fast.

What qualifies as “ordinary and necessary” can seem like a gray area at times, and you may be tempted to fudge it. Our advice: err on the side of caution. if the IRS chooses to investigate and discovers you’ve claimed an expense that wasn’t necessary for conducting business, you could face serious penalties.

4. You need to plan the trip in advance

You can’t show up at Universal Studios, hand out business cards to everyone you meet in line for the roller coaster, call it “networking,” and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance.

Before your trip, plan where you’ll be each day, when, and outline who you’ll spend it with. Document your plans in writing before you leave. If possible, email a copy to someone so it gets a timestamp. This helps prove that there was professional intent behind your trip.

The days that you travel to and from your location are counted as work days.

The rules are different when you travel outside the USA

Business travel rules are slightly relaxed when you travel abroad.

If you travel outside the USA, you only have to spend at least 25% of your time outside of the country conducting business for the getaway to qualify as a business trip.

If you travel outside the USA but spend less than 25% of your time doing business, you can still deduct travel costs proportional to how much time you do spend working during the trip.

For example, say you go on a five-day international trip. If you spend two days conducting business, you can deduct the entire cost of the airfare as a business expense—because two days out of five is equivalent to 40% of your time away.

But if you only spend one day out of the five-day trip conducting business—or just 20% of your time away—you would only be able to deduct 20% of the cost of your airfare, because the trip no longer qualifies as business.

List of travel expenses

Here are some examples of business travel deductions you can claim:

  • Plane, train, and bus tickets
  • Baggage fees
  • Laundry and dry cleaning during your trip
  • Rental car costs
  • Hotel and Airbnb costs
  • 50% of eligible business meals
  • 50% of meals while traveling to and from your destination

Travel

On a business trip, you can deduct 100% of the cost of travel to your destination, whether that’s a plane, train, or bus ticket. If you rent a car to get there, and to get around, that cost is deductible, too.

Lodging

The cost of your lodging is tax deductible. You can also potentially deduct the cost of lodging on the days when you’re not conducting business, but it depends on how you schedule your trip. The trick is to wedge “vacation days” in between work days.

Here’s a sample itinerary to explain how this works:

Thursday: Fly to Durham, NC.
Friday: Meet with clients.
Saturday: Intermediate line dancing lessons.
Sunday: Advanced line dancing lessons.
Monday: Meet with clients.
Tuesday: Fly home.

Thursday and Tuesday are travel days (remember: travel days on business trips count as work days). And Friday and Monday, you’ll be conducting business.

It wouldn’t make sense to fly home for the weekend (your non-work days), only to fly back into Durham for your business meetings on Monday morning.

So, since you’re technically staying in Durham on Saturday and Sunday, between the days when you’ll be conducting business, the total cost of your lodging on the trip is tax deductible, even if you aren’t actually doing any work on the weekend.

It’s not your fault that your client meetings are happening in Durham—the unofficial line dancing capital of America.

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