How Can I Make My Travel Deductible?

There are a few things you can do to achieve this goal, you can travel with your business partners, travel with the intent on doing business, have employees travel turn into a deduction for you, and schedule your travel a specific way to maximize your tax benefits. Before we dive into these, it is important to keep in mind that the expenses must all be ordinary and necessary, plus have a business purpose. Travel expenses are 100 percent deductible, and include transportation (renting a car while traveling, flights, commuter vehicles like E-bikes, etc.) lodging, and meals (only 50 percent deductible).

What Qualifies as Travel?

Any business conducted outside of your tax home is categorized as travel, and must be 50 miles outside of your tax home. Your tax home is where you conduct the majority of your business, such as where you earn the most revenue for your business, spend the most time, etc. You cannot have multiple tax homes, so if you work from home and have a business location, only one of these will be your tax home. Once you have established that you are outside of your tax home, you must establish a business purpose for your travel. The IRS requires that the "majority" of the day be spent on business, which means more than 50 percent. This works out to 4 hours of conducting business per day, since the typical workday is 8 hours. If you are planning on a personal trip, ask your accountant about making it into a deductible business expense by finding a business purpose to your vacation. An example of this is traveling to look at a real estate market if you work in that industry, just make sure to look at some houses or have some documentation that proves you conducted business during the trip.

How Do I Count Travel Days?

Transportation days and days spent at the location are all considered travel days. For example, if you fly out to Hawaii on Thursday and return to your tax home on Wednesday of the following week you are considered to have been traveling for 7 days. The added bonus of this plan is that weekends are automatically counted as travel days if you have business engagements the following week. This is because you are considered to be "stuck" at the location for the weekend thus required to stay for a business purpose. Essentially, if you are required to be outside of your tax home for a business obligation, it should be counted as a travel day.

How Does Employee Travel Work?

If you are sending an employee to a business location outside of their tax home, you should reimburse them under an accountable plan. This is because employee business expenses that are unreimbursed are not tax deductible to the employee and you do not get the write off as the employer, so it is a lose-lose situation. But under an accountable plan, your employee gets reimbursed in the form of wages and you get to write off the business expense. Make sure to relay this information to payroll so they can get their paystubs correct. If you are curious to learn more about this, please see What is an Accountable Plan? for more information.

Special Per Diem Rates

If you do not want to cover all of employee travel, the IRS has guidelines on using special per diem rates. The substantiation rules are the same for travel expenses, but you do not have to reimburse employees for the full amount of their travel expenses if you do not wish to do so. This is another way for your business to claim the travel deduction without using an accountable plan (see Accountable Plan for more information), but keep in mind that your deduction is limited to your per diem allowance given. The per diem rates are broken up by state and local, use the following link to figure out the per diem rates for your area https://www.gsa.gov/travel/plan-book/per-diem-rates.

Tips and Tricks

1. If you can, plan your travel around the weekends so you get the travel deduction without having to conduct business. Remember, you are considered "stuck" at the location if you have business arrangements the following week.

2. Make sure to spend at least 4 hours a day on business, which can include emailing, dining with clients/employees/partners, conducting market research on the area such as looking at real estate or evaluating a business for acquisition, or if you are looking to partner with a particular supplier/vendor. Those are just a few examples of business activities, ask your accountant about what activities are considered to have a business purpose.

3. If employees are traveling, make sure to reimburse them under an accountable plan

4. If you are planning a family trip, make sure to bring a business partner or someone associated with the business so you can turn a vacation into travel with a business purpose.

5. Travel expenses are 100% deductible and include airfare, lodging, transportation, and meals (only 50 percent deductible).

6. On travel days, meals are considered 50 percent deductible even if there is no business purpose for the meal. This is because the entire day is considered for business if you meet the travel requirements.

IRS Approved Travel Expenses:

The following items were pulled directly from the IRS list in the second link under resources.

1. Travel by airplane, train, bus or car between your home and your business destination. (If you're provided with a ticket or you're riding free as a result of a frequent traveler or similar program, your cost is zero.)

2. Fares for taxis or other types of transportation between:

   • The airport or train station and your hotel,

   • The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.

3. Shipping of baggage, and sample or display material between your regular and temporary work locations.

4. Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.

5. Lodging and non-entertainment-related meals.

6. Dry cleaning and laundry.

7. Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)

8. Tips you pay for services related to any of these expenses.

9. Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer.)

Resources

1. https://www.irs.gov/publications/p463 

2. https://www.irs.gov/taxtopics/tc511 

       3. https://www.gsa.gov/travel/plan-book/per-diem-rates