Tax Deductions for Business Travel Expenses: What You Need to Know

Tax Deductions for Business Travel Expenses: What You Need to Know
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Not everyone’s career requires that they remain in one location while they're working, and the Internal Revenue Service gets that. The IRS allows self-employed taxpayers to deduct certain expenses when they must travel in the course of earning a living. They must be ordinary and necessary expenses, and the deduction is subject to some extensive rules for deductible business expenses. In fact, it’s one of the more complicated tax breaks out there.

Employees used to be able to claim a deduction for travel if their jobs sent them on the road, but this provision has been largely eliminated by the Tax Cuts and Jobs Act. The TCJA eliminated miscellaneous itemized deductions for most taxpayers, and unreimbursed travel expenses fell into this category.

Your “Tax Home”

The deductibility of travel expenses centers on the location of your “tax home,” and the term's definition has little to do with where your residence is located. Your tax home is your primary place of business.

You might maintain an accounting office in Philadelphia. So while your home is in Cherry Hill, New Jersey, you spend your weekdays toiling away on Pennsylvania soil. Philadelphia is your tax home, and you can’t claim a deduction for traveling between your tax home and your personal home any more than any other taxpayer can claim a deduction for commuting expenses. You can only deduct expenses for travel that takes you away from your tax home to conduct business elsewhere.

This can be a complicated concept because some individuals work in more than one location. Maybe you have an office in Pittsburgh and another in Philadelphia. In this case, your tax home is the location where the majority of your business is conducted. The IRS indicates that this can be determined by how many hours you spend at each office and how much of your income you derive from each location.

It’s possible, too, that you don’t have a tax home. Your work might require that you’re constantly on the road. That would make for a pretty significant tax deduction if you could claim all those travel expenses, but unfortunately, you can’t. The IRS says you’re an “itinerant” in this case. You can’t claim a deduction for travel expenses if you don’t have a home base.

The Tax Definition of “Travel”

Another catch with this deduction is what constitutes “travel.” You might have to drive an hour away from your tax home to take care of business, but these costs aren’t travel expenses unless you’re unable to complete the round trip without sleep or rest. You can claim your mileage and vehicle costs as a whole separate tax deduction under the category of “transportation,” however.

You don’t necessarily have to check into a hotel and stay overnight, but you do have to take some time to recharge before you head back to your tax home. You can check into the hotel for a few hours without staying until dawn, and that’s okay, because the nap is necessitated by the fact that you spent longer than the average workday at the place where you were conducting business.

Expenses That Are Deductible

If there’s any good news here, it’s that a wide range of expenses are deductible after you determine that you really are traveling according to all these IRS rules. Transportation is covered, whether airfare, train travel, taxi rides, rideshares, bus or even by boat. You can deduct 57.5 cents​ per mile for driving your personal automobile ­­as of 2020, or you can claim a percentage of your actual care expenses that are dedicated to the business trip. You just can’t deduct the same costs for your automobile as a travel expense and as a transportation expense as well.

Other deductible travel expenses include:

  • Laundry or dry cleaning
  • Tips to porters and lodging staff
  • Lodging
  • Meals, but only up to ​50 percent​ of the total expense, unless you’re eating alone because you’re away from your tax home for such an extended period of time
  • Renting equipment or services
  • Registration fees
  • Shipping of baggage or materials that are integral to your work

What’s Not Deductible

All your travel expenses must be reasonable by IRS standards. Lodging that costs you ​$150 or $200​ a night is fine, depending on your travel location, but ​$1,500​ a night might not get a nod of approval from the IRS. The tax code specifies that your travel expenses can’t be “lavish or extravagant,” although no exact dollar figures define this limitation, and the IRS has been known to approve first class air travel.

Nor can you be away from your tax home indefinitely. It’s not considered travel and the costs aren’t deductible if the job is expected to keep you away from your tax home for more than a year. That place where you’re working becomes your temporary tax home if you’re going to be there that long.

You must have an established business as well. It might have been up and running for only a few weeks, but you’re not traveling for the purpose of starting that business. Start-up business expenses are a whole separate deduction.

Read More:Types of Business Expenses

Separate Out Personal Expenses

All these rules pretty much dictate that you have to weed out any travel expenses that can be considered personal in nature. Yes, you might be away from home for business-related purposes, but that doesn’t make the cost of a visit to a theater any more deductible than it would be if you’d been home and in the mood to take in a show. Likewise, the cost of a weekend in Aruba doesn’t become tax deductible simply because you take care of a few business details while you’re there.

Only your own expenses are deductible if your spouse, a dependent or a friend accompanies you on the trip and their presence isn’t necessary for the purpose of conducting business. This isn’t to say that they can’t come along for the ride, but you must separate out the costs of their travel from your own. An employee’s expenses or those of a business associate are deductible, however – even if the employee or associate also happens to be your spouse or best friend. The deciding factor is whether their presence is necessary for you to do business.

How to Claim the Deduction

Travel expenses are claimed on Schedule C if you’re self-employed, then your total net business income from Schedule C transfers to your Form 1040 tax return. Farmers should use Schedule F.

A scant handful of employees can also claim travel expenses by completing and submitting Form 2106 with their tax returns, but this is pretty much limited to Armed Forces reservists, fee-basis government officials and qualified performing artists. They must travel at least ​100 miles​ from their homes and remain away overnight to qualify. Other limitations also apply.