If you have an upcoming business trip to a charming city or a summer destination, you may end up mixing a little bit of vacation while you’re there. The good news is that most expenses can be tax-deductible provided that you stay within tax law boundaries established by the IRS. You may read more about business travel expenses here.
For you to claim deductions for business travel, the primary purpose of your trip must be business related. In short, there should be more days allotted for business than pleasure. It is best to split your travel period between business days and personal days.
In the case of writing off expenses, you need to start with plane ticket cost or other roundtrip transportation expenses, accommodations, and 50% of the total costs of your meals. There will be additional incidentals including taxi care to business-related meetings, too. Bear in mind that all costs related to the vacation part of your trip, such as additional nights at a hotel or similar accommodation, as well as sightseeing tours, are all non-deductible.
It is imperative to carefully follow established rules to avoid unpleasant surprises when you are audited. To avoid confusion about which expenses are deductible or otherwise, here are IRS ground rules and definitions that you need to familiarize yourself with:
Business travel
To simplify the process of determining whether you can make deductions for business-related travel expenses, the IRS provided a more accurate definition of business travel. In essence, business travel is any travel made away from an individual’s tax home lasting for more than one day worth of work and that which necessitates an individual to sleep away from home. In short,
In short, one should be sleeping or resting away from home to reduce the expenses altogether. The travel must be temporary in nature, not lasting more than a year.
Tax home
On the other hand, tax home is a concept established by the IRS to identify whether a trip is deductible. It is defined as your regular place of business and it not the place where you reside.
For instance, if you have an office downtown somewhere, that is considered your tax home. If you work across multiple locations and you don’t have a regular place of business, the tax home is automatically where you live.
Once you have determined your tax home location, this information will then be used to identify whether your business-related travel expenses are deductible or otherwise. If you travel away from your tax home overnight, or if you require some rest and sleep during your travels, this can be counted as business deductions.
Here is a summarized list of expenses that may be deductible depending on the facts and circumstances:
â— 50% of the cost of meals while on business-related traveling
â— Air, rail, and bus fares
â— Baggage charges
â— Hotel accommodations costs
â— Expenses related to the operation and maintenance of a vehicle, including gas, oil, lubrication, washing, repairs, tire replacement, car supplies, parking fees, and tolls.
â— Cleaning and laundry costs
â— Public stenographer fees
â— Computer rental and Internet fees
â— Telephone and fax costs
â— Tips in specific eligible expenses
â— Cost of transportation for sample and display materials and sample room expenses
Here are important ground rules that you need to remember in the determination of deductible expenses when traveling for business:
- Allocation is required if travel is a mix of business and pleasure
In the event of a trip that is a mix of business and personal, bear in mind that the IRS is constantly on the lookout for taxpayers who attempt classifying non-deductible personal trip expenses as deductible business costs. If you travel to a destination and engage in personal and business activities, you may proceed deducting the traveling costs to and from the destination, provided that the trip is primarily business-related in nature.
You need to look at the specific details and circumstances of your trip. One important factor is the amount of time or days spent for personal business during a given trip as compared to the amount of time or days spend on business-related activities. Travel expenses outside the United States may be further limited if any portion of your trip is non-work related.
Obviously, if the trip is primarily personal in nature, none of the related expenses are deductible. Even if you engage in business-related activities, your expenses will still be categorized as non-deductible.
- You may apply per diems when computing for business-related travel expenses
“Per Diem” is a term that directly translates in English as per day. Per diems are reasonable amounts for day-to-day expenses during travels and includes meals and other miscellaneous costs. Typically, per diem values are already established for U.S. and out-of-the-country trips, and rates and may vary depending on your location.
For instance, per diem rates are higher in major U.S. metropolitan cities than those areas that are outside larger cities. There are also companies that create their respective per diem values, but most companies follow the per diem rates set by the U.S. government.
By rule, per diem remunerations are automatically non-taxable if they are higher in value than pre-established rates. If an employee receives a higher per diem than that maximum per diem established by the General Services Administration, the extra amount is automatically taxable to the traveling employee.
- Costs and expenses of bringing a plus one on business trips are non-deductible
All costs related to bringing your wife or husband, children, or other individuals along a business-related trip is categorized as a personal expense. Unless, you can present proof that your travel companion is a current employee by your company and is assuming crucial work-related activities during the trip, you are not allowed to subtract the costs of this individual’s travels.
- Business-related cruise trips may be deductible but with certain limitations
Cruise-related expenditures may be deductible but only up to $2,000 pre-determined limit provided by the IRS. It is also important to provide proofs that a cruise trip is closely linked to a business function such as important meetings and conferences.
The IRS imposed additional requirements to determine whether cruise-trip related expenses should be deducted and categorized as purely business expense. If you want to read about the specific requirements for deducting a cruise travel under business expense, you may check out IRS Publication 463 about Cruise Shops limitations.
