As a business owner, travel is part of the job—meeting clients, attending conferences, and checking on vendors. Knowing which travel expenses are tax-deductible can boost your bottom line. Manage your travel costs wisely so you can help stay compliant and maximize tax savings.
What qualifies as business travel?
When you’re away from your “tax home”, ordinary and necessary business expenses may be deductible. Ordinary means typical for your industry and necessary means helpful and appropriate for work. Personal, lavish, or extravagant expenses aren’t deductible but that doesn’t mean you can’t fly first class or stay in luxury hotels. You’ll just need to show those costs were reasonable.
And don’t confuse your tax home for your family home. Your tax home is the city or general area where your main business happens. If you have multiple business locations or no fixed place of business, there are specific rules you need to follow.
You’re considered to be traveling away from home if your work requires you to be away from your tax home for an extended period—longer than a typical work day—and you need to rest or sleep to perform your job effectively. Temporary assignments are included, but travel expenses for assignments expected to last more than a year, or those that ultimately exceed a year, aren’t deductible.
Which expenses are deductible?
If your travel meets the above criteria, typical business travel expenses you can deduct include:
- Air, train, or bus fares to your destination, including baggage fees
- Car rental or vehicle usage costs like tolls and parking
- Transportation at the destination, like taxis or rideshares to and from the airport and work locations
- Lodging
- Tips for hotel or restaurant staff
- Dry cleaning and laundry
Meal expenses are typically 50% deductible. This covers meals eaten alone or with business contacts, as long as they serve a business purpose and aren’t lavish or extravagant.
How do I claim travel expenses?
Those who are self-employed can deduct travel expenses on Schedule C. At this time, employees aren’t allowed to deduct unreimbursed business expenses, including travel.
Businesses can deduct employees’ travel costs if they provide advances, reimbursements, or pay the expenses directly. These amounts aren’t subject to income or payroll taxes if made under an accountable plan, meaning the expenses must be for business purposes, substantiated, and any excess must be repaid.
Is it possible to mix business and pleasure?
If your trip is primarily for business, but includes personal time, you can still deduct the full cost of airfare or transportation to and from your destination. Lodging and meals, on the other hand, are only deductible for the business portion of your trip. As a note, if you spend more time on business activities than on personal ones, the trip is considered primarily for business.
What about documentation?
To deduct your business travel expenses, you need more than just a good memory. You’ll need solid records, like receipts, checks, and bills, that show the amount, date, place, and nature of each expense. For non-lodging costs under $75, receipts aren’t required, but keep them to include in your expense report. Keep in mind that your employer may have its own substantiation policies that are stricter than IRS requirements.
Whether you’re driving a company car or your own, you can either track your actual miles or use the standard mileage rate.
When it comes to lodging, meals and incidental expenses (M&IE) like tips, employers often use a per-diem method to make your life easier. Those who are self-employed can also use this method for M&IE, but not for lodging.
With this method, you use federal per-diem rates for lodging and meals based on your travel destination, so you can skip keeping receipts. But you will need to log the time, place, and nature of your expenses.
If you’re traveling to high-cost areas, the high-low method lets you use a higher rate for those locations and a lower rate for rest.
Need help with travel deductions?
Business travel deduction can get complicated, especially with special rules for international trips or traveling with family. Reach out to your Smolin advisor to maximize your deductions and have a tax-smart trip from takeoff to touchdown.