At this time of year, a summer vacation is on many people’s minds. If you
travel for business, combining a business trip with a vacation to offset
some of the cost with a tax deduction can sound appealing. But tread
carefully, or you might not be eligible for the deduction you’re expecting.
General rules
Business travel expenses are potentially deductible if the travel is within
the United States and the expenses are “ordinary and necessary” and
directly related to the business. (Foreign travel expenses may also be
deductible, but stricter rules apply than are discussed here.)
Currently, business owners and the self-employed are potentially eligible
to deduct business travel expenses. Under the Tax Cuts and Jobs Act,
employees can no longer deduct such expenses. The potential deductions
discussed below assume that you’re a business owner or self-employed.
Business vs. pleasure
Transportation costs to and from the location of your business activity may
be 100% deductible if the primary reason for the trip is business rather
than pleasure. But if vacation is the primary reason for your travel,
generally, none of those costs are deductible.
The number of days spent on business vs. pleasure is the key factor in
determining whether the primary reason for domestic travel is business:
– Your travel days count as business days, as do weekends and holidays —
if they fall between days devoted to business and it would be
impractical to return home.
– Standby days (days when your physical presence is required) also
count as business days, even if you aren’t called upon to work those days.
– Any other day principally devoted to business activities during normal
business hours also count as a business day.
You should be able to claim business was the primary reason for a domestic
trip if business days exceed personal days.
Deductible expenses
What transportation costs can you deduct? Travel to and from your departure
airport, airfare, baggage fees, tips, cabs, etc. Costs for rail travel or
driving your personal car are also eligible.
Once at the destination, your out-of-pocket expenses for business days
are fully deductible. Examples of these expenses include lodging, meals
(subject to the 50% disallowance rule), seminar and convention fees, and
cab fare. Expenses for personal days aren’t deductible.
Keep in mind that only expenses for yourself are deductible. You can’t
deduct expenses for family members traveling with you — unless they’re
employees of your business and traveling for a bona fide business purpose.
Substantiation is critical
Be sure to accumulate proof of the business nature of your trip and keep it
with your tax records. For example, if your trip is made to attend client
meetings, log everything on your daily planner and copy the pages for your
tax file. If you attend a convention or seminar, keep the program and take
notes to show you attended the sessions. You also must properly
substantiate all of the expenses you’re deducting.
Additional rules and limits apply to the travel expense deduction. Please
contact us if you have questions.
