There are a lot of T&E expenses incurred when small business owners are traveling for business. These business expenses can add up fast, become very costly, and easily get mixed in with personal expenses. The good news is that some of these expenses from business trips can be offset by claiming business travel deductions when filing your taxes.
Here, we will cover the IRS travel expense reimbursement guidelines for 2023 such as what travel qualifies as a business trip, which type of business expense can be written off, travel expenses that can’t be written off, writing off travel costs, how to prove business travel, and the best tips for tracking travel expenses.
If you're a frequent traveler, and need tips for how to log business expenses, read on!
What is the tax definition of business travel?
The IRS defines business travel as business that is performed “away from home” for a period that is longer than a day’s worth of work. “Away from home” is considered anywhere outside the city or outside of the area where your main place of business is located. “Longer than a day’s worth of work” means that the business being performed requires sleep or rest while away to meet the demands of work.
Therefore, for business trips to meet the tax definition of business travel, it must meet the following requirements:
The primary purpose of your trip is business.
Work requires you to be away from the general area of the main location of your business for longer than a day’s worth of work.
You need sleep during your business trip to meet the demands of your work while away.
The business activity is essential to your business.
The trip itself is essential to the operations of the business.
If the requirements of the IRS’s tax definition of business travel are met, then there are some business travel expenses that can qualify as tax deductible.
Travel expenses that you can write off
Travel expenses as defined by the IRS must be actual expenses incurred that are “ordinary, reasonable, and necessary” when traveling away from home for business purposes. These expenses must be directly related to the business activity. Also, to deduct business travel expenses, they must result from a temporary work assignment while away from home. “Temporary” refers to a year or less.
Here are some expenses that can be written off as tax business deductions if directly related to business:
Travel by car, bus, train, or airplane from home to the business destination is 100% deductible. The standard mileage rate for 2023 is 65.5 cents per mile for business miles in 2023.
Fares for taxis or other transportation from the point of arrival to a hotel, from the hotel to the work destination, or to and from a business-related meal are 100% deductible.
Lodging costs such as the overnight rates spent at hotels and Airbnb rentals is 100% deductible. If you bring a friend or family member along, you can only deduct the lodging expense for one person for the days worked.
Meals that are business-related are usually 50% tax-deductible. Business meals can be deducted either on a per diem basis or an actual expense basis.
5. Car expenses
Car expenses while away at business destinations such as gas, business related tolls, and parking fees are 100% tax deductible if business-related.
Tips paid for services related to any of these travel expenses that are associated with doing business are 100% deductible.
Communication expenses such as business calls, fax machines, Wifi, computer rental fees, or other devices or services for business communication are deductible.
Shipping includes checking luggage, shipping samples or displays that are being transported from your main place of work to the business travel destination are deductible.
Other deductions include things such as dry cleaning, laundry, and even conventions as long as you can prove that attending such an event is beneficial to your business.
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Travel expenses you can’t write off
You can’t deduct travel expenses that are related to an indefinite work assignment, which is any work assignment that lasts more than one year. Also, travel expenses may not be deducted if you realistically expect to work there for more than one year, regardless of how long you actually work there. If you expect to work at a temporary location for a year or less, but that expectation changes to working there for more than a year, then the travel expenses become nondeductible at the point your expectation changes.
The following are some expenses that are not tax-deductible:
As of 2021, entertainment expenses are nondeductible. Even meals must be non-entertainment related to be tax deductible.
2. Family, dependents, or friends traveling with you
You can not deduct any of the travel expenses of family, dependents, or friends traveling with you.
3. Lavish and extravagant
Any expenses that go beyond “ordinary, reasonable, and necessary” business activities and fall into the lavish and extravagant category are nondeductible.
4. Travel paid for with reward points
Travel paid for with reward points to purchase bus, train, plane tickets, or lodging is not deductible.
5. Travel that is already compensated
Travel that has already been paid for by an event planner or host is not deductible.
6. Personal travel expenses
You can not mix business with pleasure and expect personal expenses to be written off. Any expenses used for personal purposes can not be written off as a deduction.
Special rules for traveling abroad
Just like domestic travel, for international travel, you can deduct “ordinary and necessary” expenses incurred for business travel when “away from home” working on temporary assignments. If the trip is entirely for business purposes, all travel expenses are deductible.
If the trip is not entirely for business purposes, to deduct travel expenses, you must meet one of the exceptions in the list below. The trip will qualify as entirely for business if:
The taxpayer was outside the U.S. for a week or less, and the trip includes business and personal activities.
The taxpayer was outside the U.S. for more than a week and spent less than 25% of the time on personal activities.
The taxpayer can prove that a personal vacation was never a consideration.
The taxpayer didn’t have substantial control over arranging the trip, isn’t related to the employer, or is not a managing executive.
If the trip is primarily for business, but part of the time is spent on personal activities while traveling outside the U.S., then the travel business expenses must be allocated, and only the business percentage can be deducted. The allocation is based on days spent on deductible business expenses versus days spent on nondeductible personal activity expenses.
To determine the business percentage portion of the trip, you would count the number of business days and divide that number by the total number of days of the entire trip. That will give you the business percentage of the trip costs that can be deducted.
[3 Key Differences] Writing Off Travel Expenses – Foreign vs Domestic Travel by Boris Musheyev, CPA
Special rules for cruise ships and conventions
There are also special rules for cruises and conventions. Any ship that sails is considered a cruise ship. A taxpayer can deduct up to $2,000 annually for expenses incurred attending conventions held on cruise ships.
For these expenses to be deducted, all of these requirements must be met:
The convention is directly related to the taxpayer’s business
The cruise ship is registered in the U.S.
The ports of call are either in the U.S. or in possession of the U.S.
An agenda of the convention is attached to the taxpayer’s tax return with a schedule of the daily activities, the number of hours involved, along with the signature of the sponsor verifying attendance.
Step by step on writing off business travel expenses
Step 1. Make sure travel qualifies as a business trip. You need to leave your tax home for longer than a normal working day (overnight) with the intent of doing work at another location on a temporary assignment. You must spend the majority of your trip doing business.
Step 2. Determine that the expenses incurred are ordinary and necessary on the business trip and separate them from personal expenses.
Step 3. Save all business expense receipts for the ordinary and necessary expenses with the date, amount, place of transaction, and reason for the business transaction written on the back of the receipt.
Step 4. Categorize receipts by meal, travel, etc.
Step 5. Total each category.
Step 6. Claim the business travel expenses on Schedule C of Form 1040 by plugging the numbers into the appropriate line items if a sole proprietor or self-employed.
The Best Method to Write-Off Travel Expenses by Mark J Kohler
Best tips for travel expense tracking
Tip 1. Use a receipt tracker app like Shoeboxed
When traveling for business, it’s critical that you track every expense and have proof to back the expense up. To simplify this process use a travel management software, such as Shoeboxed, that scans and organizes receipts and creates expense reports with just a few clicks.
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Tip 2. Create a business travel email folder
Save all confirmation emails for car rentals, hotels, airline tickets, or any other confirmation for a business-related expense in a designated business travel email folder.
Tip 3. Keep a folder for business receipts with you at all times
Take a folder with you on your business trip designated especially for paper business receipts. This keeps business receipts separate from any personal receipts. Put your business receipt in the folder immediately after incurring the expense. Be sure the receipt has the date included, the amount, and where the transaction took place. On the back of the receipt, write what the transaction was for and how many people it involved.
Tip 4. Have a credit card designated just for business travel
Charge all of your business expenses to this credit card. That way, the monthly statements will have a list of all of your business expenses, along with the date of the transaction. If you’re worried about losing a physical card on the trip, you can use a virtual credit card instead.
Tip 5. Keep a detailed business journal
Document business conducted during the business trip and how income could potentially be an end result of the travel. This will especially be helpful in jogging your memory if audited years later. Also, include the destination for each trip, date of departure & return, number of days spent on business, and the amount of categorized expenses.
Tip 6. Detail receipts for meal expenses
On the back of the receipt write down who the meal covered and what business topics were discussed.
Tip 7. Detail cash incidentals
Keep a cash journal documenting amount, date, what the cash was used for, and the location. For any ATM withdrawals, make these notes on the back of the receipt.
How far must you travel to write off food expenses?
Travel must be overnight and more than 100 miles from your tax home.
What’s the difference between business travel expenses vs transportation costs?
Transportation expenses are the cost of getting to and from your tax home to the business destination either by car, plane, train, or bus. Travel expenses are all of the costs incurred from traveling overnight for business purposes such as meals and lodging.
Frequently asked questions
What form do I use to claim travel expenses if I’m self-employed?
If you’re self-employed, travel expenses are claimed on Schedule C of Form 1040.
What are the tax penalties for claiming a business deduction you don’t qualify for?
If you claim a deduction you don’t qualify for, you would have to pay the difference between what you should have paid and what you actually paid in addition to a 20% penalty on the difference.
The first step in learning how to write off travel expenses is establishing a method to track and log travel expenses efficiently and thoroughly. The IRS can go back and audit three years from the date the return was filed. Since it’s nearly impossible to remember every little detail from up to three years ago, it’s crucial to have a detailed documentation system in place where the receipts have all the details to satisfy the IRS, a journal to document the business conducted, and notes on how income could be derived from the trip to prove that the trip was essential to business.
Caryl Ramsey has years of experience assisting in different aspects of bookkeeping, taxes, and customer service. She uses a variety of accounting software for setting up client information, reconciling accounts, coding expenses, running financial reports, and preparing tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.
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