Travel Deductions
What Business Travel Expenses Are Deductible? A Guide for Self-Employed and Small Business Owners
If you travel for your business, understanding which travel expenses are deductible can help you maximize your tax savings and avoid costly mistakes. The IRS allows you to deduct certain ordinary and necessary expenses incurred while traveling away from your tax home for business purposes. Here’s a comprehensive guide to what you can and cannot deduct when it comes to business travel with an interesting tip at the end of the article.
What Does “Traveling Away from Home” Mean?
To deduct travel expenses, you must be traveling away from your tax home—your main place of business or work—substantially longer than a typical workday, and you must need to sleep or rest to meet the demands of your work while away. Your tax home is generally the city or area where your principal place of business is located, not necessarily where your family home is.
General Rules for Deductibility
Ordinary and Necessary: The expense must be common and accepted in your trade or business and helpful and appropriate for your business.
Primarily for Business: The trip must be mainly for business. If the trip is primarily personal, travel expenses to and from the destination are not deductible, though business expenses incurred at the destination may be.
Business Purpose: Only expenses directly related to your business are deductible. If you combine business and personal activities, you can only deduct the business portion.
Companions: Expenses for a spouse or companion are only deductible if that person is your employee, has a bona fide business purpose for the trip, and would otherwise be allowed to deduct the travel expenses.
Deductible Travel Expenses
Here’s what you can generally deduct when traveling away from your tax home for business:
1. Transportation
Airfare, train, bus, or car between your home and your business destination.
Taxi, rideshare, shuttle, or other transportation between the airport/station and your hotel, or between your hotel and your work location.
Shipping of baggage and business materials between your regular and temporary work locations.
Car expenses while traveling (actual expenses or standard mileage rate, plus business-related tolls and parking). For rental cars, only the business-use portion is deductible.
2. Lodging and Meals
Lodging if your trip is overnight or long enough to require rest.
Meals (subject to a 50% deduction limit) that are not entertainment-related and are incurred while traveling for business. Meals include food, beverages, taxes, and tips.
3. Incidental and Other Expenses
Dry cleaning and laundry.
Business calls, faxes, and internet access fees.
Tips for services related to any of the above expenses.
Other ordinary and necessary expenses, such as transportation to a business meal, public stenographer’s fees, or computer rental fees.
Special Rules and Limitations
Meals: Generally, only 50% of business meal costs are deductible. The temporary 100% deduction for restaurant meals expired after 2022.
Per Diem Rates: Instead of actual meal costs, you may use the federal per diem rate for meals and incidental expenses (M&IE) for the location and dates of travel. You must still document the time, place, and business purpose of your travel.
Incidental Expenses Only: If you did not pay for meals, you may deduct $5 per day for incidental expenses.
Luxury Water Travel: There is a daily limit on deductions for travel by cruise ship or luxury water transportation.
Conventions: Travel expenses for conventions are deductible if your attendance benefits your business. Special rules apply for conventions outside North America.
Spouse/Companion: Expenses for a spouse or companion are only deductible if they are your employee, have a bona fide business purpose, and would otherwise qualify for the deduction.
Non-Deductible Travel Expenses
Lavish or extravagant expenses.
Commuting between your home and your regular place of business.
Travel expenses for family members or others accompanying you without a bona fide business purpose.
Personal expenses during a business trip (e.g., sightseeing, vacation days, or personal side trips).
Reporting and Recordkeeping
Self-employed individuals: Deduct travel expenses on Schedule C (Form 1040).
Farmers: Deduct travel expenses on Schedule F (Form 1040).
Documentation: Keep receipts, canceled checks, and records showing the time, place, amount, and business purpose of each expense.
One interesting tip for those that are trying to get the most out of their business expenses is to plan trips that you can work in multiple weeks. Such as, you leave on a Thursday for a business meeting that is on a Friday and attend a work event or business meeting on the following Monday. These meetings must have a business purpose that is integral to the operations of the business. The lodging and meals would then be deductible for the entire weekend you are away for business.