Traveling for business can be both exciting and essential for professionals in various businesses, industries, and professions. Business travel can come with its fair share of expenses, whether you’re attending conferences, meeting clients, exploring new opportunities for growth, or temporarily working away from your home office. It can be confusing to navigate the world of business travel expenses and understand what you can and can’t write off for tax purposes. In this blog post, we’re breaking down some key nuances of business travel expenses so you can feel confident come tax time!
Understanding Business Travel Expenses
According to the IRS, business travel expenses are defined as the ordinary and necessary expenses incurred while traveling away from home for work-related purposes. This does NOT include extravagant purchases or personal purchases. However, for business travel expenses to qualify for tax deductions, there are a few pieces of criteria they must meet and that must be adequately documented.
Before you begin deducting travel expenses, you must understand what actually qualifies as business travel. In order to determine this, you must know where your tax home is. Your tax home is the city or general area in which your main work or business place is located. Even if you don’t have your main family home in this area, your tax home is based on where you mainly report for work.
Any expenses incurred for travel outside of your tax home for a period of time that is substantially longer than a typical day’s work can be considered business travel expenses and can qualify for tax deductions. A good rule of thumb is that if you must sleep or eat outside of your tax home for a work trip, it is considered business travel. Travel expenses can be deducted for temporary work assignments outside of your tax home. However, if there is a work assignment that is longer than one year or is indefinite, you cannot deduct those travel expenses.
If you are traveling to a business convention, those expenses can be deducted as long as you can prove your attendance and how it benefits your work.
Deductible Business Travel Expenses
Business travel expenses that can be deducted fall in a variety of categories. With all of these, you must be able to prove your purchase with the proper documentation and receipts.
- Airfare, either round-trip or one-way.
- Train tickets.
- Expenses associated with using your own car.
- Car rental, mileage, gas, parking fees, and tolls.
- Local transportation such as taxis, rideshare services, and public transportation such as buses or subways.
For all transportation expenses, it must be directly related to business travel in order to be considered for tax deduction. Personal expenses are not eligible.
- Accommodation expenses for staying in a hotel, motel, or similar establishment.
Personal expenses such as room service or personal entertainment are not eligible.
Meals and Entertainment
- Meals eaten away from the tax home for business purposes, not entertainment or personal purposes.
- Business-related entertainment expenses, such as taking a client out to a meal or attending a networking event.
This category can be subject to limits and allowances, so be sure to check the IRS website for more information.
Other Similar and Ordinary Business Travel Expenses
- Tips paid for business-related meals.
- Baggage handling fees.
- Computer rental.
- Stenographer fees.
These expenses are harder to track, but are directly related to business travel. These are typically subject to daily allowances as well.
The Importance of Documenting Business Travel Expenses
In order to claim business travel expenses as deductions on your tax return, you must provide adequate documentation and records, such as receipts, invoices, tickets, itineraries, or other relevant documents. You can use digital copies of these documents. I love using QuickBooks Online to keep detailed digital records of travel expenses.
In your documentation, be sure to keep track of dates, times, locations, and the business purpose for each expense.
All in all, if you are traveling for business, it’s important to understand what constitutes business travel based on your tax home, what types of expenses can be eligible for deduction, and how to track expenses and keep detailed documentation. This can help you make the most of your travel deductions come tax time.
For personalized help in maximizing your tax deductions, book a call with us to learn more about our accounting services and how we can help you navigate these deductions.