How do I know if these are tax deductible travel expenses?
Is the trip still deductible if my family comes along?
What if I haven’t registered my business yet?
It’s true, what they say: You have to spend money to make money. As a business owner, you’re probably already paying close attention to your business expenses, especially those that are considered tax deductible. Business travel expenses are probably one of your higher costs, and happen to be one of the most confusing types of deductions to track.
It helps to know exactly which types of travel expenses are tax deductible and which ones you are solely responsible for. It can help you make smarter spending decisions while you’re on your next business trip, and relax about certain expenses.
For the sake of completeness, let’s define tax deductible before we address tax deductible travel expenses. InvestorWords.com defines tax deductible as “An item or expense subtracted from adjusted gross income to reduce the amount of income subject to tax.” The less taxable income you have, due to deductions like business travel expenses, the less income you’ll have to pay taxes on. It’s simple, but the rules are not. You’ll see what I mean further down.
The Internal Revenue Service has established some ground rules for what types of travel expenses count as business expenses and are therefore tax deductible travel expenses. This is an incomplete list, but covers most of the business travel expenses you’ll have questions about.
Which business travel expenses are tax deductible?
- 50% of the cost of meals while traveling. If your dinner costs $160, $80 of the that amount can be deducted as a business travel expense. Humans have to eat, but since you might be choosing fancy-schmancy restaurants to woo your clients, just half the cost is covered.
- Transportation: Your airfair, rail fare, and/or bus fare, baggage costs are all tax deductible travel expenses. You have to get to your destination to do business!
- Accommodation costs and fees: Hotel, motel, Airbnb, etc. fees are deductible. You need somewhere to stay while you do business.
- Costs of operating and maintaining a car, whether it’s a rental or your own, including: Cost of gas, oil, wash, repair, parts, rental fee, insurance, tires, supplies, parking fees, and tolls. These are necessary for you to travel.
- Costs of operating and maintaining a house-trailer, if its use is “ordinary and necessary” for your business.
- Local transportation costs: Taxi/Lyft/Uber fares, Gas costs to-and-from clients, customers, or places of business, are deductible.
- All your cleaning and laundry expenses can be deducted.
- Computer rental fees can be deducted.
- Public stenographer fees can be deducted.
- Phone and/or fax expenses can be deducted.
- Cost of tips on certain expenses can be deducted.
Expenses must be business-related
This is important: The IRS only accepts deductions on business-related expenses like the ones outlined above. You should not submit expenses or receipts for any non-business-related travel expenses.
Family vacations are not business trips, even if business activities might be completed during the trip. Only travel expenses that are incurred when you travel to a destination that has to do with your existing business are eligible to be tax deductible, and as you can see above, not every expense counts.
That’s right–your business has to already exist and be registered. You can’t take a vacation, come up with a business idea, and write off the whole trip, unfortunately.
What about expenses you incur while you’re building your business, starting your company, or acquiring a business? Those aren’t business expenses, but you can add those costs to your startup expenses, deduct a small part of those expenses, and amortize (gradually reducing a debt with money you set aside for that purpose) what’s left over 180 months.
Now that you have a better understanding of what tax deductible travel expenses are defined as, did you find any deductions that you’ve been missing out on? What about expenses you thought were deductible, but actually are not? We’d love to hear about it in the comments!
Read More: Can You Travel for Business on a Budget?