That’s a Write Off: A Plan for Business Travel Deductions

Got a business trip coming up? Wondering how much of that trip you can write off? That depends on what else you have on your itinerary while you’re abroad, how extravagantly you plan to travel, and who you’re traveling with. Read on to find out what business travel expenses you can (and can’t) write off.

Basic Stipulations:

1. The first criteria is to get outta town! It may seem obvious, but in order to write off your trip, you must leave your tax home (aka the city in which your business is located). It’s not technically considered a business trip by the IRS unless you are outside of your tax home for longer than one business day, and you must be traveling with the intent to do business in another locale.

2. The majority of your trip must be spent doing business. Groan, we know. There’s no way around that one, unfortunately, but if we find one we’ll be sure to let you know. (On the bright side, the time you spend traveling to and from your destination does count.) 

To break it down: the IRS weighs the number of days on your trip spent working against the number spent… doing whatever else you might happen to schedule. Relaxing at the hotel spa? Touring in the local sights? As long as you spend more days taking care of business than taking advantage of the nearby tourist attractions, congratulations! It’s still considered a business trip, and that’s a write off. For example, if you’re in Las Vegas for a week, and you spend five days attending meetings, taking work calls, responding to emails, etc. and the other two days exploring the Vegas Strip, it’s still considered a business trip. However, if you flip that example, with five days spent sightseeing, and only two conducting actual business, that is not considered a business trip. (Although it may earn you a bonus trip, to your local IRS office, if you try to claim it on your taxes as such).

3. Your trip must be considered an “ordinary and necessary expense”. The IRS defines an ordinary expense as “one that is common and accepted in your industry”, and a necessary expense as “one that is helpful and appropriate for your trade or business”.

While this may seem like a fairly nebulous set of definitions, it’s prudent to play it safe. For example, if there is an industry event taking place in Switzerland, and the same kind of event is taking place within your tax home, you can’t hop on the next plane to Switzerland and expect to write off your excursion with no questions asked. Which brings us to our next caveat…

4.  Plan your trip. Thoroughly. Be sure to document your travel plans in as much detail as possible: make note of what you are doing each day, how long you will spend doing it, who with, and where. 

With the basic stipulations in mind, let’s take a look at the different types of expenses you can write off during your trip.

Travel

You can deduct 100% of your business travel expenses. This includes traveling by bus, train, plane, rental car, or even your own personal vehicle. Baggage fees, tolls, and parking tickets are also travel expenses eligible for deduction. You may also write off any taxi or shuttle fares incurred while commuting between your place of arrival/departure and your hotel, between your hotel and the temporary workplace, or between clients in the area.

Lodging

Per the IRS, you may deduct business-related hotel costs as long as they are not unnecessarily extravagant. Not only can you deduct the cost of your room, but also tips given to hotel staff, and many hotel fees as well. Some of these fees include: porter & baggage carrier fees, laundry expenses, phone calls, fax machine charges, etc. Personal charges, however, such as renting movies, are not eligible for a write off.

Food & Entertainment 

Provided you’re not dining at a Michelin Star restaurant every night, 50% of your meal costs during your travel (including tax and tip) can be deducted as business expenses. There are two deductions you can make when it comes to food: 50% of the actual cost of the meal, or 50% of the standard meal allowance, which varies and will depend on when and where you’re traveling. This rule applies to both solo meals and meals with clients. 

The 50% rule also applies to business entertainment expenses on your trip. How do you know if your chosen form of entertainment is business related? The IRS states, “If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related.” Expenses are not considered directly related if the entertainment occurs in a place with “substantial distractions” such as night clubs, theaters, or sporting events, since these environments provide little or no opportunity to actively participate in business. Additionally, you have to show that the entertainment “has a clear business purpose”— either to get new business, or to help sustain an existing business relationship.

Traveling Companions

If you want to bring along the family, or a companion, bear in mind you can only deduct what would be spent to accommodate you individually, since you’re the one conducting business on the trip. This applies across the board, for example: the cost of a hotel room for one person versus the cost of a hotel room that sleeps several people, the difference between the dinner bill for a family of four versus what your meal alone would cost, etc. Of course, if you are traveling with another employee who is necessary to the trip, their expenses would be tax deductible as well.

Questions? Money Mastery Can Help!

When in doubt, always remember the “ordinary and necessary expense” rule. It applies not only to the travel itself, but everything you do when you get to your destination as well. Our overarching advice is: don’t push the envelope too much. And if you have questions as to what could be considered “ordinary and necessary”— or about anything tax prep at all— send us a message! 

Additionally, if you have general concerns regarding what might get a double take from the IRS, we’ve broken down some of the top red flags to watch out for when preparing your taxes. If you want more information on how to calculate travel expenses for work, you can also  reference this extensive list from the IRS or check out their FAQ.