Travel Expense Reimbursement: Are They Tax Deductible?

Travel expenses are the costs incurred while travelling for business-related activities. These expenses are tax-deductible if they are deemed 'ordinary and necessary' and are not for personal purposes. This means that the expenses must be common and accepted in your trade or business, and helpful and appropriate for your business.

The Internal Revenue Service (IRS) considers employees to be travelling if their business obligations require them to be away from their 'tax home' (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.

Deductible travel expenses include:

- Travel by plane, train, bus or car between your home and your business destination

- Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location

- Shipping of baggage and sample or display material between regular and temporary work locations

- Using a personally owned car for business

- Dry cleaning and laundry

- Business calls and communication

- Tips paid for services related to any of these expenses

- Other similar ordinary and necessary expenses related to the business travel

Travel expenses must be ordinary and necessary

The Internal Revenue Service (IRS) considers employees to be travelling if their work obligations require them to be away from their "tax home" for a substantially longer time than an ordinary workday. This means that the employee needs to get sleep or rest to meet the demands of their work while away.

Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and the use of communication devices.

Travel expenses must be for business purposes

Travel expenses must be ordinary and necessary. They can't be lavish, extravagant or for personal purposes. Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and the use of communications devices.

If you are self-employed or operate your own business, you can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), or if you're a farmer, on Schedule F (Form 1040), Profit or Loss From Farming.

If you work for a company and are reimbursed for the costs of your business travel, your employer will deduct those costs at tax time.

Travel expenses must be for temporary work assignments

For travel expenses to be deductible, they must meet several criteria, one of the most important being that they are for temporary work assignments. This means that the nature of the work must be temporary, rather than the employment itself being temporary. For example, a construction worker travelling to different job sites would qualify as their work at each site is temporary in nature.

The IRS defines this as the "type of work normally done in less than 1 year". So, if the work is expected to be completed within a year, it falls under the category of temporary work. It's important to note that this doesn't mean the actual duration of the work, but rather the expected or typical timeframe for completion.

Additionally, the work must be temporary in relation to a specific location. This means that if the work could potentially be completed within a year at one location, but then moves to another location for the same purpose, it can still be considered temporary. An example would be an IT specialist who travels to different branches of the same company to set up their computer networks.

The nature of the work being temporary is a key factor in determining whether travel expenses are deductible. To ensure compliance with tax regulations, it's important to understand and correctly interpret this criterion. This criterion is separate from, but related to, the requirement that the travel must be away from home, referring to the tax home, or the general area of a taxpayer's business or employment, rather than their personal residence.

Travel expenses for conventions are deductible if they benefit the business

Travel expenses for conventions are deductible if the convention benefits the business. This is true even if the convention is held outside of North America. However, the IRS has specific rules for conventions held outside of the North American area. To be deductible, the meeting must be directly related to the active conduct of your trade or business, and it must be as reasonable to hold the meeting outside the North American area as within it.

The IRS considers employees to be travelling if their business obligations require them to be away from their "tax home" (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.

Deductible travel expenses include:

• Travel by plane, train, bus or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business.
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to the business travel.

Travel expenses are not deductible for indefinite work assignments

Travel expenses are the ordinary and necessary costs of travelling away from home for business, profession, or job purposes. These expenses are deductible if they are incurred in connection with a temporary work assignment away from home. However, travel expenses are not deductible if they are incurred in connection with an indefinite work assignment.

Any work assignment that is expected to last for more than a year is considered indefinite. If the expectation of a temporary assignment lasting a year or less changes to an indefinite period, travel expenses become non-deductible from the point of that expectation change.

The Internal Revenue Service (IRS) defines a temporary work assignment as one that is expected to last a year or less, and an indefinite work assignment as one that is expected to last more than a year.

Frequently asked questions