Schedule E for Form 1040 from the Internal Revenue Service is used to report income and expenses from rental real estate, royalties, partnerships, S corporations, estates and trusts. Expenses for business travel that are incurred in dealing with these entities are reported on Schedule E.
Keeping Adequate Records
Should the IRS call you in for an audit of your taxes, you must be able to document the deductions you have taken for travel, as well as all other expenses you claim. Keeping a detailed log or diary of your travel, noting dates, times, places and reasons will help you explain deducted expense items. Get receipts from all sources to substantiate expenses. Canceled checks, bills, receipts and ticket stubs are documenting evidence that can support your deductions. The IRS warns, “You cannot deduct any amounts that you approximate or estimate.” Failure to produce supporting travel deduction documents may result in additional tax and possibly penalties. Keeping accurate and detailed records of your travel is essential.
Defining Business Travel
The IRS considers business travel to be when you travel away from the general area of your tax home for a longer period of time than an ordinary day’s work. This travel may include the need to sleep overnight in order to perform the necessary demands for your work. Your tax home is considered to be the city or general area where your main work is located. This does not have anything to do with where your family’s home is located. The IRS gives the illustration that if your family lives in Chicago but your work is in Milwaukee, you cannot deduct expenses for hotel stays in Milwaukee because this location is considered your tax home. Also, your travel back home to Chicago is not a deductible expense, since this travel is not for work. If you regularly work at more than one location, your tax home is considered to be the area where your main work or place of business is located. The most important consideration in determining your tax home is the length of time spent at each location.
Expenses you incur while temporarily traveling for a work assignment are deductible, but if the assignment period is indefinite, then expenses are not deductible.
Allowable Transportation Deductions
Transportation expenses between your home and your business travel destination are deductible. This can be by airplane, bus, train or your own car. The expense of taking a taxi cab to an airport, bus depot or train station is also deductible. Travel expenses to conventions are deductible providing that your attendance benefits your trade or business. If you drive to your business destination, use of your car while at that location is also deductible.
When using your own vehicle, keep an accurate record of your mileage, giving starting and ending odometer readings, dates and destinations. Office supply stores sell small mileage books to record auto travel, and these books are acceptable documentation by the IRS. The mileage rate deduction changes every year and is listed in the current year’s tax instructions.
Business Travel Meals And Lodging
When eating while traveling on business, the deduction for meals is generally limited to 50 percent. You can either get receipts from restaurants for each meal or you can use the IRS “standard meal allowance.” This amount will vary depending on the area where you are traveling. Lodging at a hotel or motel is deductible, as are any other business travel-related expenses, including laundry, dry cleaning, making business calls, sending faxes and other communications and computer rental fees.
If there is a business travel-related item for which you don’t have a receipt or other documented proof, compose a written statement containing specific details about the item. Give other supporting evidence if possible. Your statement can also include the testimony of guests or witnesses concerning the item and its use. Record the cost, time, place, date and circumstances regarding the expense.
- IRS: Business Travel Expenses
- IRS: Entertainment & Travel Expenses
- Internal Revenue Service. "Topic No. 511: Business Travel Expenses." Accessed Jan. 5, 2019.
- Internal Revenue Service. "Publication 521: Moving Expenses," Pages 5-6. Accessed Jan. 5, 2020.
- Internal Revenue Service. "Publication 463: Travel, Gift, and Car Expenses," Pages 4-5.
- Internal Revenue Service. "Publication 463: Travel, Gift, and Car Expenses," Pages 6-7.
Dan Keen is the publisher and editor of a county newspaper in New Jersey. For over 30 years he has written books and magazine articles for such publishers as McGraw-Hill. Keen holds a degree in electronics, was chief engineer for two radio stations and taught computer science at Stockton State College.