If you and your employees are hitting the road for work-related travel this summer, there are several considerations to keep in mind. To claim deductions under tax law, you must meet specific requirements for out-of-town business travel within the United States. These rules apply if the business you’re conducting reasonably requires an overnight stay.
Note that, due to the Tax Cuts and Jobs Act, employees are unable to deduct their unreimbursed travel expenses on their own tax returns until 2025. This is because unreimbursed employee business expenses fall under the category of “miscellaneous itemized deductions,” which aren’t deductible until 2025.
With that said it’s also important to note that self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.
Rules that come into play
The actual cost of travel—things like plane fare and rides to the airport—are deductible for out-of-town business trips. You can also deduct the cost of lodging and meals. Your meals are deductible while you’re on the road, even if they’re not connected to a business conversation or related function.
There was a temporary 100% deduction for business food and beverages provided by a restaurant in 2021 and 2022, however, it was not extended to 2023. This means that there’s once again a 50% limit on deducting your eligible business meals this year.
Please be aware that no deduction is allowed for meal or lodging expenses that are categorized as “lavish or extravagant,” a term that’s generally interpreted to mean “unreasonable.”
Any personal entertainment costs on your trip aren’t deductible, but business-related costs like dry cleaning, computer rentals, and phone calls can be written off.
Mixing business with pleasure
If your trip includes a mix of business and pleasure, you may need to make allocations. For instance, if you fly to a destination for four days of business meetings and stay an additional three days for vacation, only the expenses for meals, lodging, and other related costs incurred during your business days are deductible.
Note that if your business activities spanned over a weekend (say you had meetings Wednesday through Friday and again on Monday), the costs incurred during the weekend portion of your trip can still be deducted.
On the other hand, if the trip is primarily for business purposes, the entire cost of the travel, including plane fare and other expenditures, may be deducted without any allocations required.
Remember that if the trip is largely personal, none of the travel costs are deductible. The amount of time spent on each aspect of the trip is a significant factor in determining whether it is primarily a business or personal trip, though this is not the sole factor.
If the trip does not involve actual business activities but is intended for attending a convention, seminar, or similar events, the IRS may closely scrutinize the nature of the meeting to ensure it is not just a disguised vacation. Keep any documentation that will aid in establishing the business or professional nature of your travel.
Other expenses
The rules for deducting the costs of a spouse accompanying you on a business trip are quite restrictive. No deduction is allowed unless the spouse is your employee or an employee of your company, and their travel is also for business reasons.
Finally, please be aware that personal expenses incurred at home as a result of the trip are not deductible. For example, if you need to board a pet or pay for babysitting while you’re on the road, this cost cannot be claimed as a deduction.
Have questions? Smolin can help.
If you’re looking for ways to get the most benefit from your travel deductions this summer, contact the knowledgeable professionals at Smolin, and we’ll help you navigate all of the ins and outs of deducting travel expenses for your business.