Business travel is stressful, but a well-planned travel expense deduction can take the sting out of it. If you're self-employed, you claim tax deductions for travel expenses on Schedule C, Profit or Loss from Business.
Business travel expenses
To qualify for the deduction, your business-related expenses must be ordinary and necessary. In other words, the expenses cannot be extravagant or for personal purposes.
Travel expenses include:
- Airfare, bus fare, or vehicle expenses incurred to travel to the business destination
- Lodging expenses while traveling for business
- Non-entertainment related meals while traveling for business
- Dry cleaning and laundry while traveling for business
- Transportation expenses while on business travel, such as tolls, parking fees, subway costs, or taxi fares
- Other ordinary and necessary business travel expenses
Ordinary and necessary travel expenses are deductible if they meet certain criteria. To qualify, your travel must:
- Take you away from the general area of your tax home—the location of your main place of business
- Be substantially longer than an ordinary work day
- Require you to rest or get sleep to fulfill your work duties while on travel
- Not be considered an indefinite work assignment by the IRS—typically, any work assignment over one year
Additionally, you must have planned your business-related activity prior to travel. Your expenses do not qualify if you spontaneously conduct business as a side activity on a planned personal vacation.
Maintain your records
When you deduct business travel expenses, you need to have substantiating documentation. Be sure to keep receipts from all transportation, accommodation, meals, and other expenses that you plan to claim. To ease the burden of documentation, the IRS has simplified certain business-related expense deductions.
Personal use is not allowed
If your trip has both a business and personal portion, you need to back out the expenses related to the personal nature of the trip. For example, assume your spouse travels with you on a work trip. If you received a room upgrade to accommodate two-person occupancy, you can only deduct the rate that you would have paid had you stayed in the one-person room. Additionally, your spouse's meals cannot be deducted—unless, of course, your spouse works for the business as well.
Common tax deductions for travel expenses
Following are some common travel-related expenses you may be able to deduct.
When you claim vehicle expenses, you can choose to claim actual expenses incurred or the standard mileage rate. If you are using the actual expense method, be sure to keep backup documentation. Actual expenses include items such as:
- Parking fees
- Lease payments
The standard mileage rate is a simplified method to deduct vehicle expenses. Instead of using your actual costs, you can use the annual standard mileage rate. It varies every year, and you can find the standard mileage rate tables on the IRS website. If you use the standard mileage rate, you can also claim parking fees and tolls you incur while conducting business-related activity. Be sure you save those receipts!
Meals while traveling for business are deductible as long as they are not extravagant or entertainment-related. If your meal includes an entertainment portion, the receipt must list food and beverages separately as a meal expense in order to qualify for a deduction. If the receipt lists the total only, the entire expense cannot be deducted. For example, if you're taking your client to a dinner theater show in Orlando, the receipt must list food and beverage expenses separately from the entertainment.
Similar to the vehicle expense deduction, you can choose the actual expense method or the standard meal allowance. Of course, if you choose the actual expense method, you will need to keep all your receipts. Non-entertainment business meals are generally subject to a 50% limitation. However, for the time period from January 1, 2021, and December 31, 2022, there is a temporary 100% deduction allowance for business meals purchased from a restaurant.
If you choose the standard meals allowance, the U.S. General Services Administration lists the per diem rates on its website. The per diem rates vary by location and date, and there is a limit on the rate for the first and last days of travel.