For tax purposes, travel expenses are costs associated with traveling to conduct business-related activities. Reasonable travel expenses can generally be deducted from taxable income by a company when its employees incur costs while traveling away from home specifically for business. Conferences, meetings, and site inspections may all qualify as business travel.
Key Takeaways
- Travel expenses are tax-deductible only if they are incurred for business-related activities.
- Only ordinary and necessary travel expenses are deductible; unreasonable, lavish, or extravagant expenses are not deductible.
- The IRS considers employees to be traveling if their business duties require them to be away from their “tax home” for significantly longer than a regular workday.
- Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and communication device usage.
- Travel expenses from indefinite work assignments lasting more than one year are not deductible for tax purposes.
Embracing Travel Expenses: What You Need to Know
The IRS considers employees to be traveling for business if their responsibilities necessitate being away from their “tax home”—the locale of their primary business operations—for much longer than a typical workday and they require sleep or rest to meet work obligations.
Proper record-keeping—such as maintaining receipts, canceled checks, and other supporting documents—can help you gain reimbursements from your employer and assist your employer in preparing accurate tax returns. Deductible travel expenses typically include:
- Airfare and Lodging: Costs incurred to conduct business far from home.
- Transportation Services: Expenses for taxis, buses, or trains to the airport or around the destination.
- Meals and Tips: Costs of nourishment and tips during travel for business.
- Communications Devices: Expenses for business calls, internet access, and computer rentals during the trip.
Regular commuting costs do not count as travel expenses.
Note: Individual wage earners can no longer deduct unreimbursed business expenses due to changes enacted by the 2017 Tax Cuts and Jobs Act.
While business travel expenses are often deductible, unreasonable expenses or those for personal purposes are not.
Vibrant Categories of Travel Expenses
Travel expenses can encompass various categories, including:
- Personal Vehicle Expenses
- Taxi or Rideshare Fees
- Airfare, Train Fare, or Ferry Fees
- Lodging
- Laundry and Dry Cleaning
- Business Meals
- Business Calls
- Shipment Costs for Work-Related Materials
- Equipment Rentals, like Computers or Trailers
Using a personal vehicle for a business trip—covering mileage, tolls, and parking fees—qualifies as a travel expense. Rental vehicle expenses can also be included, but only for the business-use portion of the trip.
Note: Travel expenses during indefinite work assignments exceeding one year are non-deductible.
The IRS allows consideration of other ordinary and necessary expenses related to business travel for tax deduction purposes. Transport to and from business meals, fees for a public stenographer, payment for computer rentals, and the shipment of business materials can all qualify.
Travel expenses may also include the operational and maintenance costs of a trailer used during a business trip.
Reap the Benefits: Can You Deduct Your Business Travel Expenses?
Individuals: Business travel expenses are no longer deductible unless you are self-employed.
Self-Employed/Business Owners: You can deduct ordinary and necessary business expenses from your returns.
Employees: If reimbursed for business travel, your employer will deduct those costs at tax time.
The Importance of Keeping Receipts for Travel Expenses
Yes, documenting your expenditures is essential. Whether you’re looking to claim reimbursement from an employer or are a business owner asserting a tax deduction, retaining a comprehensive record and filing away receipts are crucial steps. Maintain a running log to back up your claims.
What Counts as Reasonable Travel Expenses?
Reasonable travel expenses typically include:
- Transportation to and from the business destination.
- Accommodation costs.
- Dietary needs met through meal expenses.
Unreasonable costs, like luxurious expenses on extravagant activities, may not be acceptable. Hiring a sports car instead of a regular vehicle or reserving a lavish hotel suite may not meet the criteria for reasonable travel expenses.
Bottom Line
Individual taxpayers no longer have to worry about keeping records for unreimbursed travel expenses, though they may be reconsidered when the latest tax reform provisions expire or are extended in 2025.
For the self-employed or business owners, retain comprehensive records of your travel expenses to accurately deduct them. Proper record-keeping can make a significant difference at tax time and ensure you receive the rightful deductions.
Related Terms: business expenses, tax home, IRS regulations, Tax Cuts and Jobs Act.
References
- Internal Revenue Service. “Topic No. 511, Business Travel Expenses”.
- Internal Revenue Service. “Publication 463, Travel, Gift, and Car Expenses”, Page 13.
- Internal Revenue Service. “Publication 5307, Tax Reform Basics for Individuals and Families”, Page 7.
- Internal Revenue Service. “Publication 463, Travel, Gift, and Car Expenses”, Pages 6-7, 13-14.
- Internal Revenue Service. “Publication 463, Travel, Gift, and Car Expenses”, Page 4.
- Internal Revenue Service. “Publication 5307, Tax Reform Basics for Individuals and Families”, Pages 5, 7.
