The IRS has a specific definition for business travel when it comes to determining whether these expenses are tax deductible. The agency says business travel is travel that takes you away from your tax home and is "substantially longer than an ordinary day's work." It requires that you sleep or rest while you're away from home, and that you do so. The travel must be "temporary." This means it can't last a year or more.
- You can deduct expenses that take you away from your tax home for a period of time that would require you to spend the night.
- Your tax home is the city or area where your regular place of business is located.
- You’re limited to 50% of the cost of your meals.
- Your trip must be entirely business-related for costs to be deductible, but special rules apply if you travel outside the U.S.
What Is Your "Tax Home"?
Your tax home is a concept set by the IRS to help determine whether a trip is tax deductible. It's defined by the IRS as the entire city or general area where your regular place of business is located. It's not necessarily the area where you live.
Your tax home can be used to determine whether your business travel expenses are deductible after you've determined where it's located. You can probably count your expenses during travel as business deductions if you have to leave your tax home overnight or if you otherwise need time to rest and sleep while you're away.
Check with a tax professional to make sure you're accurately identifying the location of your tax home.
Charges on Your Hotel Bill
Charges for your room and associated tax are deductible, as are laundry expenses and charges for phone calls or for use of a fax machine. Tips are deductible as well. But additional personal charges, such as gym fees or fees for movies or games aren't deductible.
The 50% Rule for Meals
You can deduct the cost of meals while you're traveling, but entertainment expenses are no longer deductible and you can't deduct "lavish or extravagant" meals.
Meal costs are deductible at 50%. The 50% limit also applies to taxes and tips. You can use either your actual costs or a standard meal allowance to take a meal cost deduction, as long as it doesn't exceed the 50% limit.
The Cost of Bringing a Spouse, Friend or Employee
The cost of bringing a spouse, child, or anyone else along on a business trip is considered a personal expense and isn't deductible. But you may be able to deduct travel expenses for the individual if:
- The person is an employee
- They have a bona fide business purpose for traveling with you
- They would otherwise be allowed to deduct travel expenses
You may be able to deduct the cost of a companion's travel if you can prove that the other person is employed by the business and is performing substantial business-related tasks while on the trip. This may include taking minutes at meetings or meeting with business clients.
Using Per Diems To Calculate Employee Travel Costs
The term "per diem" means "per day." Per diems are amounts that are considered reasonable for daily meals and miscellaneous expenses while traveling.
Per diem rates are set for U.S. and overseas travel, and the rates differ depending on the area. They're higher in larger U.S. cities than for sections of the country outside larger metropolitan areas. Companies can set their own per diem rates, but most businesses use the rates set by the U.S. government.
Per diem reimbursements aren't taxable unless they're greater than the maximum rate set by the General Service Administration. The excess is taxable to the employee.
If you don't spend all your time on business activities during an international trip, you can only deduct the business portion of getting to and from the destination. You must allocate costs between business and personal activities.
Combined Business/Personal Trips
Your trip must be entirely business-related for you to take deductions for travel costs if you remain in the U.S., but some "incidental" personal time is okay. It would be incidental to the main purpose of your trip if you travel to Dallas for business and you spend an evening with family in the area while you're there.
But attempting to turn a personal trip into a business trip won't work unless the trip is substantially for business purposes. The IRS indicates that “the scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip."
International Business Travel
The rules are different if part or all of your trip takes you outside the U.S. Your international travel may be considered business-related if you were outside the U.S. for more than a week and less than 25% of the time was spent on personal activities.
You can deduct the costs of your entire trip if it takes you outside the U.S. and you spend the entire time on business activities, but you must have "substantial control" over the itinerary. An employee traveling with you wouldn't have control over the trip, but you would as the business owner would.
The trip may be considered entirely for business if you spend less than 25% of the time on personal activities if your trip takes you outside the U.S. for more than a week.
You can only deduct the business portion of getting to and from the destination if you don't spend all your time on business activities during an international trip. You must allocate costs between your business and personal activities.
The Cost of a Cruise (Within Limits)
The cost of a cruise may be deductible up to the specified limit determined by the IRS, which is $2,000 per year as of 2022. You must be able to show that the cruise was directly related to a business event, such as a business meeting or board of directors meeting.
The IRS imposes specific additional strict requirements for deducting cruise travel as a business expense.
Frequently Asked Questions (FAQs)
How do you write off business travel expenses?
Business travel expenses are entered on Schedule C if you're self-employed. The schedule is filed along with your Form 1040 tax return. It lists all your business income, then you can subtract the cost of your business travel and other business deductions you qualify for to arrive at your taxable income.
What are standard business travel expenses?
Standard business travel expenses include lodging, food, transportation costs, shipping of baggage and/or work items, laundry and dry cleaning, communication costs, and tips. But numerous rules apply so check with a tax professional before you claim them.
The Bottom Line
These tax deduction regulations are complicated, and there are many qualifications and exceptions. Consult with your tax and legal professionals before taking actions that could affect your business.