As a business owner, travel is often essential—whether to meet clients, attend conferences, or inspect vendors. Knowing which travel expenses qualify for tax deductions can greatly impact your financial health. Proper management and documentation of travel costs can help you stay compliant while maximizing your tax savings.
Defining Your Tax Home
You can deduct travel expenses that are both ordinary (common in your industry) and necessary (helpful and appropriate for your business). Personal, lavish, or extravagant expenses aren’t deductible—but this doesn’t exclude first-class flights or luxury hotels, as long as the costs are reasonable.
Your “tax home” is not necessarily your personal residence. Instead, it refers to the city or region where your primary place of business is located. For taxpayers with multiple business locations or no fixed workplace, special rules apply.
You are considered “away from home” if your business duties require extended travel beyond a normal workday, necessitating rest or sleep to perform your work. Temporary work assignments qualify, but travel expenses for assignments expected to last more than a year (or those that extend beyond a year) are not deductible.
Common Deductible Travel Expenses
If you meet the criteria, here are some expenses you can deduct:
Transportation costs: Airfare, train tickets, bus fares, and baggage fees.
Car expenses: Rental fees, mileage, tolls, and parking.
Local transportation: Taxis, rideshares, or public transit to and from airports, hotels, or work locations.
Lodging: Hotel stays or similar accommodations.
Meals: Typically, 50% of meal expenses are deductible, including those for business discussions or solo meals during work trips.
Other expenses: Tips, dry cleaning, and laundry.
How to Claim Travel Deductions
Self-employed individuals: Claim travel expenses on Schedule C of your tax return.
Employees: Unreimbursed business expenses, including travel, are not deductible under current tax laws. However, employers can deduct travel expenses paid or reimbursed under an accountable plan. In such cases, reimbursements are excluded from employees’ taxable wages if they serve a business purpose, are substantiated, and excess payments are returned.
Business and Personal Travel
When combining business and personal activities on a U.S. trip, you can still deduct the full cost of round-trip transportation if the trip’s primary purpose is business. However, lodging and meal deductions apply only to the business portion of your travel.
Recordkeeping and Documentation
To deduct travel expenses, you must maintain adequate records, such as receipts, canceled checks, and invoices. These should document the amount, date, location, and purpose of each expense. While receipts aren’t required for non-lodging expenses under $75, you still need to document these in an expense report.
For vehicle expenses, you can choose between deducting actual costs or using the standard mileage rate.
To simplify tracking, you may use the per-diem method for lodging and meals. This allows you to apply federal per-diem rates for the travel destination instead of keeping detailed receipts. However, self-employed individuals can only use this method for meals and incidental expenses (M&IE). Alternatively, the high-low substantiation method offers two per-diem rates based on whether the travel location is high-cost or not.
Seek Expert Guidance
Rules for international travel, or trips involving family members, have additional complexities. If you’re unsure how to handle these or other situations, seeking professional advice can ensure accurate tax reporting and optimized deductions.
Need help navigating business travel deductions? Contact us for tailored guidance.