For someone who likes to travel, the world offers enormous opportunity for new sights and adventure. However, travelling can be an extremely expensive habit. Because of that fact, you may be tempted to try to write off some of your travel expenses as a business expense.
This is perfectly legal, as long as you follow some pretty strict rules that the IRS has outlined.
Main Purpose of the Trip
The major criterion which determines whether or not travel expenses are fully deductible, partly deductible, or non-deductible, is the purpose of the trip.
If you are on a business trip, and you do no personal business during the entire trip, then clearly the entire expense is deductible. Keep in mind that if your employer fully reimburses you for your trip, then you have incurred no expense personally and are not entitled to any deductions.
Travel expenses that are deductible include transportation (airfare, train fare, mileage in the case of driving your personal car), lodging (hotel room), meals, and other incidentals.
Combining Business and Personal Travel
If you combine some personal travel with a business trip, you will need to prorate the deductions based on how many days are for business and how many days are for personal use.
Be sure that your trip is at least 50% business, however, or the IRS may dis-allow the business deduction. You can’t go on a one-day business trip and stretch it into a week of sightseeing, and then deduct anything as business-related.
Reasonable and Ordinary
While the IRS does realize that you need to eat while on a business trip, they do set some limits on how much you can spend. Generally they will approve a per-diem meal allowance in the range of $30 – $50 a day. If you plan to eat all of your meals in a five-star restaurant, be prepared to have some of your meals deduction denied.
Of course, entertaining clients in a fancy restaurant is something different, and that is also allowed, but that kind of an expense should be deducted as an Entertainment expense, rather than as a Travel expense.
The IRS also frowns on other “lavish or extravagant” expenses, such as booking the Presidential Suite at a hotel when an ordinary room would have been sufficient.
When You Live and Work in Different Places
Some employees actually work in one place and live in another, and travel between the two. For example, you might work in Chicago, but live in Wisconsin. You spend the week working and staying at a hotel in Chicago, and then you drive to your home in Wisconsin every weekend.
Unfortunately, absolutely none of this expense can be deducted as a business-travel expense. The IRS classifies Chicago, where you work, as your business address, and therefore your hotel room and meals are not considered travel expenses.
And, when you travel to Wisconsin to spend the weekends with your family, that is considered personal travel, not business travel, and therefore it is not deductible either.
Temporary Vs Indefinite Work Trips
The IRS allows travel expenses to be deducted for what it considers a temporary situation, but not for one that is indefinite. Any work assignment that lasts for longer than one year is considered indefinite, which is a pretty generous length of time.
So you may not deduct travel expenses if, at the time of initial deployment, it is reasonably expected that you will remain on-site for longer than a year. The IRS makes the deductibility of the expenses contingent upon the expectation of the length of the stay, and not on the actual length itself.
In other words, if you take a remote job that is supposed to last for six months, then you can deduct your travel expenses, including hotel. If, while you are there, it becomes clear that you will be staying for longer than a year, then your expectation has changed, and your expenses are no longer deductible from that point on.
For further information on these issues, as well as other issues related to deductible business travel expenses, please see this article on our blog.
This guest post was written by Audrey. She is an experienced guest poster working for Wallace & Associates CPA a Century City certified personal accountant boutique agency
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