Deductibility of Travel Expense
~ Author - Michael Koontz, Deluzio & Company - Staff Accountant II ~
As we continue to move through the summer months, more than likely our vacations and travel opportunities begin to move to the forefront of our mind. Whether it is the usual family vacation to unwind from the stressful world of work or business conferences geared towards obtaining new skills and increasing our talents and abilities, summer frequently sees an increase in travel across all spectrums.
It is important to distinguish and understand the differences between deductible and non-deductible travel costs, particularly when the purpose of the trip is both business and pleasure, as travel usually is. The rules we will be discussing below outline the ability to deduct the cost of your out-of-town business travel within the U.S. These rules only apply if the business conducted out of town reasonably requires an overnight stay.
Costs of Travel
The actual costs of travel (e.g., plane fare, cab to airport, etc.) are deductible for out-of-town business trips. You are also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they are “personal,” i.e., not connected with business, although, as with all deductible meals, only 50% of the cost is allowed (80% for long-haul truckers, certain airline, train and bus employees, and certain merchant mariners). Additionally, no deduction is allowed for meal or lodging expenses that are “lavish or extravagant,” a term that has been interpreted to mean “unreasonable.”
Personal entertainment costs on the trip aren't deductible, but business-related costs such as for dry-cleaning, phone calls, and computer rentals are.
Some allocations may be required if the trip is a combined business/pleasure trip, for example, if you fly to a location for five days of business meetings and stay on for an additional period of vacation. Only the cost of meals, lodging, etc., for the business days are deductible—not for the personal vacation days.
On the other hand, with respect to the cost of the travel itself (plane fare, etc.), if the trip is “primarily” business, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each, although this isn't the sole factor.
Areas of Caution
If the trip doesn't involve the actual conduct of business but is for the purpose of attending a convention, seminar, etc., the IRS checks the nature of the meetings carefully to make sure they are not vacations in disguise. Be careful to save all material helpful in establishing the business or professional nature of this travel.
The rules on deducting the costs for your spouse if he/she accompanies you on a business trip are very restrictive. No deduction is allowed unless they are an employee of your company and their travel is also for a business purpose.
Finally, note that personal expenses you incur at home as a result of taking the trip aren't deductible. For example, the cost of boarding a pet while you're away isn't deductible.
Travel expenses are frequently reviewed and examined during an audit, and the rules can be confusing, so always be sure to consult with your tax preparer on the deductibility of your travel expenses. If you have any additional or concerns, please feel free to contact one of the members of our tax department for further clarification.