Complete guide to travel expense tax deductions and how to use them correctly

Many small business owners have to travel a few times a year or even as often as every week. Unfortunately, the cost of transport, lodgings, and meals adds up. However, you can write these fees off as business expenses by learning about IRS deductible travel expenses. 

Learning about business deductions can save a business thousands of dollars each year. They also empower owners to network, visit clients, and attend valuable workshops. Finally, knowing which deductions are eligible for a write-off can save you a lot of stress at tax time. Here’s our guide to identifying deductions.

• Are travel expenses tax deductible?
• Travel expense tax deduction list
• How to write off travel expenses on your taxes
• Travel expenses write-off calculation sheet
• Example business vacations you could write off
• Holiday travel write-off considerations
• What are disallowed business expenses?

Are travel expenses tax deductible?

The IRS allows tax deductions on certain travel expenses when the trip's main purpose directly relates to your business. Since the line between business and non-business travel is hard to draw, you can take a few steps to ensure your trips' overhead costs qualify. You must:

• Leave the area for longer than a day. The place where you normally conduct business is called a tax home. Travel expenses aren’t deductible unless you spend two or more days doing business outside your tax home.
• Spend the majority of your trip on business. The IRS measures trip length in days. So, if you spend four days of a week-long trip on work and three days on rest, it still qualifies as a business trip. 
• Limit yourself to “ordinary and necessary” expenses. Businesses can write off expenses so long as they’re required or typical in their field. Taking a client to dinner is considered ordinary. Renting a yacht won’t count because it isn’t necessary or usual. 
• Document trip plans in advance. The IRS is more likely to provide deductions if you schedule expenses in advance. Before you leave, document and time-stamp hotel reservations, plane tickets, and conference fees.

Travel expense tax deduction list

Understanding business tax deductions is easier with a list of example write-offs. While most expenses outside your tax home qualify for deductions, you can find a list of the most common ones below.

Deductible travel expenses

• Transportation
• Lodging
• Meals
• Event registration
• Equipment rentals
• Miscellaneous business expenses

Non-deductible travel expenses

• Family travel and lodging costs
• Expenses in your tax home
• Entertainment
• Unnecessary or unreasonable expenses

How to write off travel expenses on your taxes

Even if you go on a trip for business purposes, incorrectly filing your tax deductions could stand in the way of a write-off. To ensure the IRS covers every expense, plan your write-offs before leaving and hold onto your receipts once you get home. The main steps to follow include: 

1. Confirming the eligibility
2. Making sure expenses are ordinary and necessary
3. Saving all receipts from a trip
4. Itemizing your expenses
5. Filing your write-off correctly

1. Confirm the eligibility

Before you can bank on a write-off, you must ensure a trip is eligible for business deductions. The IRS uses rigid criteria to weigh business expenses, so make sure your write-offs meet all the following standards: 

One or more business-related appointments (set up before you leave)

To qualify for deductions, you must book a business-related appointment before leaving. It's impossible to deduct expenses if you intend to meet contacts and conduct business on the fly. You need to establish a "prior set business purpose" and keep copies of your correspondence and scheduled appointments.

Primarily used for business purposes

The IRS won’t deduct 100% of your transportation costs unless the trip is primarily for business and lasts longer than an ordinary day’s work. You can also write off lodging, taxis, car rentals, and 50% of your food costs on business days. You can also deduct laundry, dry cleaning, personal grooming, and other “ordinary and reasonable” expenses for the trip.

If you make a layover in another city for personal reasons, you cannot deduct those related travel expenses. The IRS doesn’t require that you keep receipts for payments less than $75, but you do need to keep a log of the time and date of the expenses. To streamline the process, you can use QuickBooks expense tracking software.

Longer than an ordinary day’s work

You can’t write off expenses from a day trip. The IRS requires that deductible travel lasts longer than a standard workday. If your trip involves an overnight stay, then the travel qualifies for a deduction. This applies even if you intersperse your trip with personal days. 

No companion expenses included

You can only deduct expenses typically incurred on a solo business trip. For example, if you travel by air, you can only deduct the cost of your plane ticket. Your family will have to purchase their own. However, if you drive with friends, you can write off all the transport fees because you would have incurred the same expenses on your own. 

Likewise, only 50% of your food costs are deductible, along with your portion of the lodging. So, if you usually rent a single hotel room, but need a double and another room for the kids, you can only deduct the cost of a single room.

Destination and travel within the United States

The above rules only apply to travel within the United States. If you plan to travel to another country, the IRS has stricter standards when allowing for deductions. For the complete set of taxable deductions for overseas travel, see IRS publication 463.

Tip: Plan travel dates wisely

The IRS counts travel days as business days, along with any weekends or holidays sandwiched between appointments. If you schedule your time right, you can squeeze in personal vacation time and only have to pay for lodging, meals, and other personal expenses on days that don’t qualify as business days.

Example: If you plan to leave on a Thursday and have a business appointment on Friday, and then another one on Monday, you will have accumulated five business days, and can write off all expenses for them. 

• If you want to stay longer and use the time as personal vacation days, your transportation costs would still be 100 percent deductible
• You would only be out of pocket for any expenses unrelated to business during the extended-stay period

2. Make sure expenses are ordinary and necessary

Business owners who try to deduct unnecessary or unreasonable expenses from their taxes may run into trouble. While you can deduct the cost of taking a client to dinner, that doesn’t mean you should spring for a thousand-dollar bottle of wine. Avoiding extravagant fees makes the IRS more likely to accept your deduction.

3. Save all receipts from a trip

Track all expenses by holding onto every receipt from your trip. While not every expense will earn a write-off, it’s worth checking in with a tax professional before throwing any away. Over time, small write-offs and unexpected deductions lead to huge savings. 

For added security, use an app like QuickBooks Self-Employed to scan receipts as you receive them.

4. Itemize your expenses

Once you narrow down the receipts eligible for a deduction, organize them into different categories. Group food, transport, and lodging fees into their own folder and write notes explaining when and how you made each expenditure. You'll be in good shape during tax season if you do this work while the information is still fresh.

Note: The IRS offers a temporary 100% deduction on business meals ordered from a restaurant between December 31, 2020, and January 1, 2023. In all other cases, the write-off is 50%.

5. File your write-off correctly

Once tax season rolls around, you need to make sure that you properly file your travel expenses. Self-employed individuals will list travel write-offs on Schedule C Form 1040. Businesses must claim travel expenses on Form 2106 report them on Form 1040 or Form 1040-SR as an adjustment to their total income.

While there’s no annual travel deduction limit, the IRS scrutinizes higher write-offs. Be sure to calculate your business expenses with a tax attorney before submitting a large filing. 

Travel expenses write-off calculation sheet

Earning a travel deduction means keeping accurate records of your spending. On a business trip, you should tally up your fees on an expense sheet. You can then calculate your deduction using one of the formulas within the sheet below. Please note this is an estimation tool, and should not be taken as financial or tax advice, always refer to IRS guidelines for the latest updates.

To use the sheet:

1. Download and open the sheet
2. Input your expenses by category
3. Note your total for your reference

Formulas for travel expense write-offs

To estimate your travel deductions, you can use one of the following formulas. When tallying write-offs, be careful about what you consider a business expense. While baggage fees, laundry costs, and admission to a workshop all count, you shouldn’t include personal expenses like souvenirs. Additionally, you can only write-off entertainment costs when treating a client, vendor, or business acquaintance. 

Note: The IRS offers a temporary 100% deduction on business meals ordered from a restaurant between December 31, 2020, and January 1, 2023. In all other cases, the write-off is 50%.

Business trip with no personal days

This formula applies to business trips that involve no personal days. The entire trip consists of travel and business purposes.

transportation + lodging + business expenses + (meals / 2) = your deduction

Business trip with personal days in the middle

This formula applies to business trips with vacation time sandwiched between business days. So long as you spend more time on business than leisure, you can include transport and lodging costs in your deductions.

Transportation on business days + lodging + business expenses + (meals on business days / 2) = your deduction

Other trips involving business

This formula applies to trips that are mostly for business with vacation days at the beginning or end, or personal vacations with at least one business day. You cannot deduct any fees from personal days, so you will end up spending much more on lodgings and transport. 

Transportation on business days + lodging on business days + business expenses + (meals on business days / 2) = your deduction.

Example business vacations you could write off

If your business requires you to travel, you could be missing deductions that can shrink your taxable income and grow your bottom line. While travel expenses must be business related in order to be 100% deductible, taking a little vacation time during a trip isn’t unusual. 

With that in mind, here are five ideas that you might be able to coordinate with or plan “in and around” your holiday travel to maximize your tax deductions.

1. Attending Your Company’s Annual Meeting

The IRS offers deductions for attending a corporation or LLC's annual meeting. These meetings allow you to discuss company goals, learn more about your field, and network with other professionals. You'll also get the rare opportunity to meet shareholders and company advisors. 

2. Visiting Clients

Strengthening relationships with your customers boosts sales and provides tax deductions for businesses with clients all over the country. Try to meet as many important clients as you can when visiting their area. Additionally, take notes on what you discussed in case it becomes relevant later. 

3. Visiting Vendors

Many vendors, subcontractors, suppliers, and corporate affiliates set up shop all over the country. Take an opportunity to network, renegotiate prices, or tour the facilities. While these meetings might begin for a tax write-off, they grow into a professional relationship. Remember that deductions won’t apply to meals and lodgings for any friends or family you bring. 

4. Attending Conferences or Workshops

Look into local conferences and workshops when traveling. Seminars on business, management, taxes, marketing, SEO, website building, customer service, and technical training are the most common. Workshops relevant to your profession are tax deductible. 

Holiday travel write-off considerations

Some businesseskeep working through the holiday season so you may find some overlap between family and business . However, IRS auditors invest time and resources into ensuring these expenses relate to business and not a holiday trip. Here are the main points to consider when deducting write-offs during holiday travel:

Holiday vacations aren’t deductible (most likely)

If you travel without doing any business, the IRS won’t offer any deductions on your vacation. You cannot write off travel or lodging fees just for visiting friends and family. Even if your trip was primarily a vacation with a little work tacked on, only the costs incurred for business on business days are deductible. 

Business expenses on vacation are deductible

You can qualify for a small deduction if you go somewhere for vacation and incidentally work while traveling. In addition, any costs related to business expenses—and not relaxing or vacationing—are eligible for a write-off.

Holiday write-offs only apply to you and work associates

If you travel to see a client over the holidays and bring your family, you cannot write off any costs they incur. You are responsible for funding their meals, lodging, and other expenses. That said, you can deduct rental car payments even if your family rides with you.

Follow IRS guidelines

Passing vacation expenses off as a business write-off will trigger an IRS audit. The IRS may level a fine and revoke other business write-offs. So, to keep earning future tax deductions, stay within IRS guidelines and pay for your own vacation expenses. 

What are disallowed business expenses?

If someone claims a deduction they don’t qualify for, the IRS penalizes them for these disallowed business expense deductions. This penalty occurs when business owners use write-offs to pay substantially less income tax than they should have. In general, the IRS defines substantially less as the equivalent of a difference of 10% of what a business owner owes, or $5,000—depending on which is higher.

Not only will the IRS audit you for disallowed deductions, but they’ll also charge a fine.

What is the pentalty for a disallowed business expense?

In addition to making up for lost tax dollars, business owners have to pay a penalty for disallowed expenses. They owe 20% of the difference between what they needed to pay and what they actually paid for their income tax. In other words, if you write off disallowed business expenses, you must pay 120% of your tax obligation.

As a general rule of thumb, don’t write off an expense unless you can prove it relates to work. Even though the IRS wants to make business travel worthwhile, a disallowed expense will stop you in your tracks. For this reason, keep your receipts and records handy and discuss the expenses and accurately fill out tax forms with your CPA at the end of the year in order to report a well-balanced tax return.

QuickBooks’ expense tracking software keeps tabs on your business expenses and ensures you get the deduction you deserve at tax time.