Business Travel Deductions And Making The Most Of Your Time Away

1. The Business Trip Qualifier

Your tax home is the base location of your establishment. Traveling for work isn’t technically a “business trip” until you leave your “tax home” for longer than a typical workday, with the intention of doing business in another location. More details on what qualifies as a workday can be found below. 

2. Make Sure Business Is The Primary Reason For The Trip

The IRS measures your time away in days. For a getaway to qualify as a business trip, you need to spend the majority of your time “conducting business”. For example, you go away for a week (seven days). You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as a business trip. But if you spend three days meeting with clients, and four days on the beach? That’s a vacation.

3. Assure Your Trip Is An “Ordinary And Necessary” Expense

“Ordinary and necessary” is a fun term used by the IRS to designate expenses that are “ordinary” for a business and “necessary” for the sake of carrying out business activities. Let’s say there are two virtually identical conferences taking place and one is in a vacation destination like a tropical island, the other in or near your hometown. This scenario serves as an example: you can’t go to the conference on the tropical island and write it off because there was the same option close to home. The tropical island trip is no longer reasonable. if there’s a real conflict that makes it impossible to attend the one close to home, then you go right ahead and book the one further away. 

However, just remember to document, document, document! It has to be provable, meaning you have to give an example. Similarly, if you need to rent a car to get around, you’ll have trouble writing off the cost of a high-end car if a more economical car is available. 

When you’re not sure if it’s ordinary and necessary, err on the side of caution. I try to be conservative to assure we follow IRS guidelines. If the IRS chooses to investigate and discovers you claimed an expense that wasn’t necessary for your business, you could face some serious and expensive penalties.

4. Plan The Trip In Advance

Let’s be real. You can’t just show up at Disney World, have lunch, discuss business, call it “networking”, and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance to some extent. Before your trip, plan where you’re going to be each day and outline who you’ll spend it with. I cannot stress this more-Document your plans in writing before you leave. If possible, email a copy to someone, so it gets a timestamp. This helps prove that there was professional intent behind your trip.

5. The Rules Change When You Travel Outside The United States

Traveling outside the US throws in something to consider. You only have to spend at least 25% of your time outside the country conducting business for it to qualify as a business trip. If you spend less than 25% of your time doing business, you can still deduct the travel costs based on the percentage of how much time you do spend working during the trip. Example: You go on a five-day international trip, you spend one conducting business, you can deduct 1/5 of the trip expenses.

5. The Rules Change When You Travel Outside The United States

Traveling outside the US throws in something to consider. You only have to spend at least 25% of your time outside the country conducting business for it to qualify as a business trip. If you spend less than 25% of your time doing business, you can still deduct the travel costs based on the percentage of how much time you do spend working during the trip. Example: You go on a five-day international trip, you spend one conducting business, you can deduct 1/5 of the trip expenses.

6. The List Of Travel Expenses You Can Claim

To simplify, I have added a list of travel expenses you can deduct.  There are always extenuation circumstances.  When in doubt, ask your CPA.

• Transportation

This includes: Plane, train, and bus tickets between your home and your business destination

• Baggage fees
• Laundry and dry cleaning during your trip
• Rental car costs
• Hotel and Airbnb or VBRO-Like costs (The later can be tricky–more on this below)
• Fifty Percent of eligible business meals
• Fifty Percent of meals while traveling to and from your destination

Here are some of the details to help clarify the list:

• Travel 

• On a business trip, you can deduct 100% of the cost of travel to your destination, whether that’s a plane, train, or bus ticket. If you rent a car to get there, and to get around, that cost is deductible, too.

• Lodging 

• The cost of your lodging is tax-deductible. You can also potentially deduct the cost of lodging on the days when you’re not conducting business, by wedging “vacation days” in between work days. Again, more on this below.

• Meals while you travel and during your stay. 

• Even on a business trip, you can only deduct a portion of the meals, even ones that specifically facilitate business. Do yourself a favor and make sure you make a note on the receipt, or in your expense tracking app, about who you met, what you discussed and why. On the other hand, if you’re wandering around Faneuil Hall sampling the local vendors and there’s no clear business justification for doing so, you’ll have to pay for the meal out of your own pocket.

• Bringing friends & family on a business trip. 

• Don’t want to go alone? You can’t directly deduct the expense of bringing friends and family on business trips, but some costs can be offset indirectly.

• Driving to your destination

• Have empty seats in your car? You can fill them and still deduct your mileage or car rental costs as long as you’re traveling for business, or renting a vehicle is a “necessary and ordinary” expense. Here’s the exception, if you end up creating extra mileage or “unnecessary” rental costs because you bring extra people along for the ride (like having to rent a bigger car/van to accommodate the extra people), the expense is no longer deductible. That is considered NOT “necessary or ordinary.”

• Renting a place to stay

• Just like the driving expense, you can only deduct lodging equal to what you would use/spend if it were just you traveling. But there is some flexibility. If you pay for lodging to accommodate you and your family, you can deduct your portion of the lodging costs or what you would pay only for yourself. For example, let’s say a hotel room for one person costs $100, but a hotel room that can accommodate your family costs $150, You can rent the $150 option and deduct $100 of the cost as a business expense.  The reason is that $100 is how much you’d be paying if you were staying there alone. This deduction has the potential to save you a lot of money on family travel. Just make sure you hold on to receipts and records that show the prices of different rooms, in case you need to justify the expense to the IRS

7. So, You’ve Determined Your Trip Is Technically A Vacation.

You can still claim any business-related expenses! The moment your getaway crosses the line from “business trip” to “vacation” because you spend more days gallivanting with your family than conducting business, you can no longer deduct business travel expenses.

Good news! You can still deduct regular business-related expenses if you happen to conduct business while you’re on vacation. Let’s say one of your clients lives in the Boston area, so you have a lunch meeting with your client while you’re in town with your family. Because the lunch is business related, you can write off 50% of the cost of the meal. Just keep the receipt and make a note.

The other “vacation” related expenses that made it possible to meet with this client in person—plane tickets, vehicle rental, so you could drive around the city—cannot be deducted; the trip is still a vacation.

8. The Cost Of Breaking The Rules

Don’t bother trying to claim a business trip unless you have the paperwork to back it up. Use an app like Expensify to track business expenses (especially when you travel for work) and master the art of bookkeeping, or hire a good bookkeeper to do it for you! If you claim write-offs and maintain proper documentation, you should have all the records you need to justify your deductions during a tax audit.

9. The Good Stuff On Travel Expenses

How to make travel business deductible and what determines if travel can be deducted.  There are three categories 3 travel categories:

1. Transportation expenses
2. Life related expenses
3. C. Business related expenses

Transportation is really an all or nothing expense. If you spend the majority of your trip days doing business, you deduct 100% of the transportation expenses.  However,  if the majority are personal days, you get zero deductions for things like lodging and meals. You can deduct these on the business days, but not on the personal days. Remember, meals are subject to the 50% limitations. Business related expenses such as printing, shipping, communication are 100% deductible at all times even on personal days.

10. The Big Question-what Constitutes A Business Day?

To count a day as a business day, the IRS says you need to meet one of the following categories:

• Work over 4 hours (more than half of a normal 8 hr work day in pursuit of business)
• “Presence required day”–If someone (employee, partner, client, customer, vendor) requires your presence at a particular place for a specific business purpose this counts as a business day, for however brief, even if they don’t show up!
• “Travel day”–days you spend in a reasonably direct route to your business destination
• Weekends, holiday and “standby days”–if they fall between two business work days they get counted as business work days even if you do not conduct business, as long as it’s not reasonable to return home.
• “Trying to work “-any day when circumstances beyond your control prevent you from pursuing your business objective. Examples-meeting setup and a person can’t make it, your car breaks down, you get sick.
• You saved money on travel day”-This one can be a little tricky. If you get a sizable discount by traveling a day or two earlier or day or two later and if the savings you get exceed the cost of spending the extra day or two at your destination, then those extra days you get by saving money can be business travel days. I’m going to sound like a broken record but document, document, document so can you prove it in the event of an audit.

Conclusion

With a little planning, you can turn a business trip into a bit of personal time for yourself.  Hey, if you have to travel, make it meaningful. Alternatively, if you have a personal trip where you visit family and friends, and you can meet with clients or attend a conference for your industry to take a partial deduction, PLAN! Assuring you get some “me_ time in the day-to-day is important.  Remember, when in doubt, ask an expert!

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