We’ve all dreamed of taking an all-expenses-paid vacation. Can Uncle Sam help pay for some of those expenses? Yes – and no.
Let’s look at some of the ways you can use your travel expenses to save on your tax bill – and some ways you can’t.
Why can travel expenses be deductible?
Some travel expenses can be deductible, and some can’t. Why?
The expenses that are deductible are related to money-making activities, or business travel.
The expenses that aren’t deductible are the ones related to purely personal travel and spending.
Justifiable business travel expenses are deductible because they are an expense against the money that you made during that trip.
Income is revenue after expenses, so the IRS allows you to deduct expenses that reduce your business income.
There are also rules about military travel spending, but those are a little different than regular business travel rules.
The 3 musts to deduct travel spendings
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To be deductible, travel spending has to meet three requirements.
- It must be related to business activities – as either business owner or employee.
- It must be ordinary and necessary to the business.
- It must be away from your tax home – which is not always the same as your personal home.
What do those things mean?
- Ordinary: the expense is within normal limits for the business or industry.
- Necessary: the expense is appropriate and helpful in completing your work.
- Away from tax home: you are not working at the place where you usually work or conduct business.
What travel expenses are deductible?
The following travel-related expenses are generally deductible.
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If you are self-employed or pay these expenses out of pocket as an employee, you may deduct these expenses.
If your employer pays for or reimburses some of these things, those expenses are deductible for them, not you.
If you “pay” for some of the expenses using credit card points or frequent flyer miles, those are not deductible either.
- Travel costs, such as a plane ticket, rental car, bus ticket, or fuel and mileage for a personal vehicle.
- Commuting costs, such as taxis or Uber.
- Lodging costs. These costs are only deductible if you are away from home long enough to require sleep (usually overnight).
- Meal costs. These must be ordinary and necessary, not extravagant, but cost is not the determining factor. For instance, if you are entertaining a very wealthy client with a business lunch, it’s understood that you will spend more on the meal than you might just for yourself.
- Business communication, such as cell phone, fax, or international call charges
- Tips related to any business-related services listed here. For example, this could be wait staff or a hotel porter.
- Laundry and dry cleaning services during your trip.
- Other ordinary and necessary expenses related to the business. An example could be rental fees for a co-working space.
How much can I deduct?
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