Business Travel Expenses: Claiming On Taxes

Business travel expenses can be claimed on your taxes, but there are a few things to keep in mind. Firstly, the trip must be for business purposes and must take place away from your tax home, which is usually where your business is based. Secondly, the expenses must be ordinary and necessary, meaning they are typical and required in your field. Thirdly, you should plan your trip in advance and document your expenses to ensure you can claim the correct deductions. This includes transportation, lodging, meals, laundry, and other business-related costs. It's important to keep track of your spending and only claim eligible deductions to avoid penalties from the IRS.

Transportation costs

• Air, rail, and bus fares between your home and business destination are deductible. If you are provided with a ticket or are travelling for free (e.g. using reward points), then the cost is considered zero and cannot be deducted.
• Local transportation costs, such as taxi fares or other types of transportation between the airport/train station and your hotel, or from the hotel to a work location, are also deductible.
• If you are using a personally owned car for business, you can deduct the actual expenses or use the standard mileage rate, along with business-related tolls and parking fees. If you rent a car, only the business-use portion of the expenses is deductible.
• Baggage fees and the shipping of baggage, samples, or display materials between regular and temporary work locations are deductible.
• If you are driving to your destination and have empty seats in your car, you can bring friends or family along without losing the ability to deduct your business mileage or car rental costs. However, if you incur extra mileage or "unnecessary" rental costs due to bringing others along, this expense is no longer deductible.
• Transportation costs for sample and display materials, as well as sample room costs, are also deductible.

It is important to note that travel expenses must be "ordinary and necessary" to be deductible. This means that the expenses should be typical and required for your industry, and not lavish or extravagant. Additionally, the trip must be primarily for business purposes, and travel days are counted as workdays.

Lodging expenses

When it comes to lodging expenses, the IRS considers employees to be travelling if their work requires them to be away from their "tax home" for a period longer than an ordinary day's work, and they need to sleep to meet the demands of their work while away.

In this case, lodging and non-entertainment-related meals are considered deductible travel expenses. However, it's important to note that these expenses must be "ordinary and necessary". The IRS defines "ordinary and necessary" as expenses that are "ordinary" for a business, given its industry, and "necessary" for carrying out business activities. For example, if there are two similar conferences, one in an exotic location and the other in your hometown, you cannot write off an all-expense-paid trip to the exotic location.

Additionally, you can only deduct lodging expenses equivalent to what you would typically need. For example, if you're travelling with your family, you can only deduct lodging costs equivalent to what you would pay for yourself. Staying in a hotel suite instead of a standard room or renting a sports car instead of a regular sedan may be considered unreasonable by the IRS.

It's also important to keep in mind that travel expenses for work assignments lasting longer than a year are generally not deductible.

To claim lodging expenses, it's essential to maintain well-organised records, including receipts, cancelled cheques, and other supporting documents.

Meals and entertainment

When it comes to entertainment, this is a little more tricky. You can only deduct a portion of the meal and entertainment expenses that specifically facilitate business. For example, if you are entertaining a client over a business lunch, you can deduct 50% of the bill. However, if you are dining out without a clear business justification, this would not be deductible.

It is also important to note that you must keep good records of your meal and entertainment expenses. Make sure to note on the receipt or in your expense-tracking app the nature of the meeting, who you met with, when, and what you discussed. This will help you prove that there was a professional intent behind your expense.

When it comes to meals and entertainment while travelling, the same rules apply. You can deduct 50% of your meal costs while travelling to and from your destination, as long as the trip is primarily for business. Again, make sure to keep good records and avoid extravagant expenses.

Travel days and business days

When it comes to travel days and business days, there are a few key things to keep in mind. Firstly, your travel needs to qualify as a "business trip". This means that the primary purpose of your trip needs to be for business purposes. Simply put, your trip must consist "mostly" of business.

The IRS measures your time away in days. To qualify as a business trip, you need to spend the majority of your trip conducting business. Travel days, such as flying to and from your destination, are counted as workdays. For example, if you go away for a week and spend five days meeting with clients and two days vacationing, that qualifies as a business trip. However, if you spend three days with clients and four days on vacation, it is considered a vacation and does not qualify for tax deductions.

Additionally, your trip needs to be an "ordinary and necessary" expense. This means that the expense must be common and accepted in your industry and necessary for carrying out your business activities. For instance, if there are identical conferences in your hometown and an exotic location, choosing the latter would not be considered "ordinary and necessary".

It's important to note that business travel rules differ when travelling internationally. If you travel outside the USA for more than a week, you must spend at least 75% of your time conducting business for the trip to qualify as a deductible business expense. If you spend less than 75% of your time on business, you can still deduct travel costs proportionally to the time spent working.

Lastly, remember that proper documentation and planning are crucial. A business trip needs to be planned in advance, with a clear itinerary and professional intent. Keep records of your expenses, such as receipts, to support your deductions.

Tax home

The IRS defines a tax home as the "entire city or general area" of an individual's primary place of work, regardless of their permanent residence. It is the geographical region where an individual spends the most time for business purposes. For those who work in more than one place, the IRS expects them to choose one as their tax home based on the following criteria:

• How much time they spend in each place
• How much work they do in each place
• How much money they make in each place

Of these, the most important factor is the amount of time spent in each place.

For those who have neither a regular place of business nor a place where they regularly live, the IRS considers them itinerant, and their tax home is wherever they work.

The concept of a tax home is essential in determining whether business expenses for transportation, meals, and lodging are tax-deductible. An employee is considered to be travelling away from home if their work requires them to be away from their tax home for a period longer than an ordinary workday.

Frequently asked questions