When traveling overseas for business, the regulations are slightly relaxed. If you go outside the United States but spend less than 25% of your time conducting business, you can still deduct travel expenses according to the amount of time you work during the trip.
Assume you’re going on a five-day foreign trip. If you go for two days for business, you may deduct the whole cost of your ticket as a business expense for two days out of five which equals 40% of your time away.
However, if you only conduct business for one day out of the five-day vacation—or just 20% of your time away—you may only deduct 20% of the expense of your ticket since the trip no longer counts as a business one.
Here are some instances of business travel deductions you can claim:
- Tickets for flights, trains, and buses between your home and your business destination
- Baggage fees
- Laundry and dry cleaning while on vacation
- Rental vehicle expenses
- Hotel and Airbnb prices
- 50% of qualifying business meals
- 50% of meals consumed while traveling to and from your destination
On a business trip, you can deduct the whole expense of your transportation to your destination, whether it’s by airline, train, or bus. If you hire a car to travel there and around, that expenditure is also deductible.
Your hotel expenses are tax-deductible. You may even be able to deduct the expense of housing on days when you are not conducting business, depending on how you plan your trip. The key is to schedule “vacation days” between workdays.
Meals and entertainment during your stay
Meals and entertainment are provided throughout your stay.
Even on a work trip, you may only deduct a part of your meal and entertainment costs that are directly related to business. So, if you’re in Louisiana and closing a deal on some alligator nuggets, you may deduct 50% of the amount.
Just make a note on the receipt or in your expense-tracking software about the nature of the meeting—who you met with, when you met, and what you discussed. If, on the other hand, you’re trying the local food and there’s no apparent business reason for doing so, you’ll have to pay for the lunch yourself.
Meals and entertainment while you travel
The meals you eat while going on your work trip might be deducted by 50% as business costs.
This might be your opportunity to try local delicacies and deduct them from your taxes. Just make sure your preferences aren’t too extravagant. Meals must be “ordinary and essential” for performing business, just like any other deductible business cost.
Bringing friends & family on a business trip
Don’t want to spend your business trip’s vacation time by yourself? While you can’t deduct the cost of taking friends and family on business trips directly, you can offset some of the costs indirectly.
Driving to your destination
Do you have three or four seats in your car that are empty? Feel free to fill them. Even if others join you for the journey, you can still deduct your business mileage or car rental charges as long as you’re traveling for business, and hiring a vehicle is a “necessary and customary” expense.
One exception: If you travel with your family and pay extra miles or “unnecessary” rental charges, the amount is no longer deductible because it isn’t “necessary or customary.”
Assume you needed to rent a huge vehicle to bring your children on a business trip. If you wouldn’t have needed to rent the same vehicle if you were traveling alone, the cost of the extra-large van is no longer deductible as a business expense.
Renting a place to stay
You can only deduct housing expenses that are comparable to what you would use if you were traveling alone, just like you can only deduct driving expenses.
However, there is considerable leeway. If you pay for accommodation for yourself and your family, you can deduct the percentage of the expense that is similar to what you would pay for yourself only.
For example, suppose a hotel room for one person costs $100 while a hotel room for your entire family costs $150. You may rent the $150 option and deduct $100 of the cost as a business expense because that is how much you would spend if you stayed alone.
This deduction has the potential to save you a significant amount of money on family housing. Just make sure to save receipts and documents that show the rates of various rooms in case you need to defend the spending to the IRS.
The cost of breaking the rules
If you don’t have the papers to back up your claim for a business trip, don’t bother. Track company expenses (particularly while traveling for work) with an app like Expensify and learn the art of small business recordkeeping.
You should have all of the data you need to support your deductions during a tax audit if you claim qualifying write-offs and keep correct paperwork.
In fact, if your company is highlighted for audit, the IRS will attempt to inform you by mail as soon as possible following your filing. This is usually within two years of the date of your filing. The IRS, on the other hand, maintains the power to go back as far as six years.
Where to claim travel expenses
You’ll claim travel costs on Schedule C, which is part of Form 1040 if you’re self-employed. When it comes to taking advantage of the tax write-offs covered in this article—or any other tax write-offs, for that matter—the help of a competent bookkeeping team and a trustworthy CPA is critical.
Financial statements that are accurate can help you comprehend cash flow and keep track of deductible spending. A CPA can also discover deductions you may have missed and represent you during a tax audit, in addition to completing your taxes.