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:
- Confirming the eligibility
- Making sure expenses are ordinary and necessary
- Saving all receipts from a trip
- Itemizing your expenses
- 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.