Business travel can be a lot of things: exciting, tiring, profitable, and — if you don’t properly manage your expenses, per the IRS — taxing (in the financial sense).
When it comes to deciding what to claim and how, there’s no substitute for seeking advice from a professional tax preparer (particularly one who’s familiar with your situation). Nonetheless, if you’re handling the job yourself, here are some general tax tips when deducting travel expenses.
1. Focus on the essentials. “Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job,” the IRS explains. That means these expenses must be necessary to the business’s ability to function, says Senen Garcia, a Miami-based attorney and accountant. They may not be “lavish or extravagant.”
The IRS will likely define these terms in context of your business, Garcia says. Private jet travel to the Cayman Islands, for example, is neither ordinary nor necessary for most plumbers. The business must somehow benefit from the travel expense that’s being deducted.
2. Limit expenses to the scope of the business. “Business travel for a conference Wednesday through Friday, for example, is fully deductible for lodging, airfare, and meals,” Garcia says. (Entertainment-focused meals are 50 percent deductible.) But, if you decide to stay over the weekend, after the conference, “those expenses are not deductible.”
3. Family members should pay their own way. Travel expenses for employees or vendors who accompany you (at your request) to help achieve business goals during a trip are deductible. However, expenses for bringing along family members are not, unless your relatives are somehow part of the business’s operations or perhaps shareholders, Garcia says.
4. Overnight stays are OK if you do more than a day’s work. The IRS considers overnight travel legitimate when “your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.”
5. Know your true home base. The IRS considers your tax home to be “the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home.”
So, if your office is in Los Angeles but you live in San Diego, your commute from San Diego to the office does not count as a travel expense. It’s only when you travel from Los Angeles to another region — and must stay overnight or longer — that the travel expenses you incur are considered tax-deductible.