Business Travel Expenses: Here’s What You Can Deduct

As we come out of the COVID-19 pandemic, you may be traveling again for business. Under tax law, there are several rules for deducting the cost of your out-of-town business travel expenses within the United States. These rules apply if the business conducted out of town reasonably requires an overnight stay.

business travel expensesNote that under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses through 2025 on their own tax returns. That’s because unreimbursed employee business expenses are “miscellaneous itemized deductions” that aren’t deductible through 2025.

However, self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.

Here are some of the rules that you need to know.

Transportation and meals

The actual costs of travel, such as airfare and cabs to the airport, are deductible for out-of-town business trips. You’re also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they’re not connected to a business conversation or other business function. The Consolidated Appropriations Act includes a provision that removes the 50% limit on deducting eligible business meals for 2021 and 2022. The law allows a 100% deduction for food and beverages provided by a restaurant. Takeout and delivery meals provided by a restaurant are also fully deductible.

Keep in mind that no deduction is allowed for meal or lodging expenses that are lavish or extravagant, a term that’s been interpreted to mean “unreasonable.”

Personal entertainment costs on the trip aren’t deductible, but business-related costs such as those for dry cleaning, phone calls and computer rentals can be written off.

Combining business and pleasure

Some allocations may be required if the trip is a combined business/pleasure trip. For example, if you fly to a location for five days of business meetings and stay there for an additional period of vacation. Only the cost incurred for the business days are deductible — not those incurred for the personal vacation days.

On the other hand, with respect to the cost of the travel itself (airfare, etc.), if the trip is primarily business, the travel cost can be deducted in its entirety and no allocation is required. If the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each (although this isn’t the sole factor).

If the trip is for the purpose of attending a convention or seminar and doesn’t involve conducting business, the IRS may check the nature of the meetings carefully to make sure they aren’t vacations in disguise. Be sure to retain all material helpful in establishing the business or professional nature of this travel.

Other expenses

The rules for deducting the costs of a spouse who accompanies you on a business trip are very restrictive. No deduction is allowed unless the spouse is an employee of you or your company, and the spouse’s travel is also for a business purpose.

Finally, note that personal expenses you incur at home due to taking the trip aren’t deductible. For example, the cost of boarding a pet while you’re away isn’t deductible.

Questions

Contact us today if you have questions about your small business deductions.

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