The IRS allows deductions for some business travel, but it’s crucial to keep detailed records and only deduct what is allowable. Below is a summary of this complicated subject for travel within North America. Travel outside of North America has additional rules and restrictions. We know this is confusing for many business owners from Jenkintown to Warminster and are here to answer any questions you may have.
What is your tax home?
You have to first determine what your primary place of business is. This is not necessarily what you consider home; it’s where you primarily work.
If you work in a different city than where you live, but you travel home regularly, the city of work is considered your tax home, not your city of residence. This includes temporary reassignments of one year or less. Conversely, if you work out of your home, or within the same region, then your city of residence is also your tax home.
If you work in more than one location, consider the time spent in each place and the relative importance of each place in terms of business and income. Then choose the one that is more relevant as your tax home.
If you have no regular place of work and no regular place of residence, you are considered “itinerant” and therefore have no tax home and cannot claim any travel deductions.
What is considered business travel?
Commuting to and from your primary place of business is not considered business travel by the IRS. It’s considered commuting and is therefore not tax deductible. However, if you travel to another location other than your primary place of work to conduct business, that is considered business travel.
What is deductible?
What is deductible depends on whether or not you have left your tax home. If you are within your tax home, you can deduct travel expenses for car or other transportation costs such as train or cab fares, if this travel is necessary to conduct business. Most people take the standard mileage deduction for car expenses, rather than keeping all receipts. If you travel extensively with your car, you may wish to talk to your tax advisor to see if itemizing might be a better option for you.
If you are traveling outside of your tax home and it is far enough away that you can’t reasonably be expected to make the round trip without rest or sleep, you can deduct more travel expenses:
- Transportation expenses, tolls, etc.
- Convention or trade show expenses, if it directly relates to your line of work
- 50% of your own meal expenses
- Hotel expenses – get an itemized bill, as certain fees such as the use of the gym or room service are not be deductible
- Equipment rental or other miscellaneous items needed to conduct business away from your tax home
Keep actual receipts, not just a line item on your credit card statement. If you travel with your family, no portion of their expenses is deductible – except the room that you would need to stay in anyway. If you get a suite to accommodate your family, you may not be able to deduct the entire cost. Check with your tax advisor. If more than 25% of your travel is personal, it may be considered a vacation by the IRS. You might not be able to deduct transportation costs or other expenses, except actual expenses to visit a client or conduct business while on vacation.
Your travel expenses may be simple and these rules may easily apply to you. However, if you aren’t sure if you can deduct something, or if your travel is complicated by personal travel or international travel, call us here at F. J. Koelle & Assosciates to see how we can help you deduct as much as you can without triggering scrutiny from the IRS.