Operating Expense: Deducting Travel Costs
Need Professional Help? Talk to a Lawyer.
If you travel overnight for business, you can deduct your airfare, accommodations, rental cars, and other travel expenses. Economy is not an issue for the IRS — you may fully deduct your costs, even if you stay at four-star hotels and enjoy the comforts of a first-class cabin.
However, most people do not travel to a distant city and spend every waking moment working — time may also be spent seeing the sights and visiting friends. The IRS has created a set of rules delineating what costs are deductible and how much of a trip must be business-related in order to deduct its costs. These rules depend on where you travel and how long you stay.
If you travel within the United States, transportation costs (air and cab fare, for example) are deductible as long as you spend at least half of your trip on business — for example, buying merchandise or meeting with manufacturers. On days when you are carrying out business, you may also deduct your “destination” expenses, such as hotel costs, 50% of your meal expenses (see below for more on this 50% rule), local transportation (including car rental), and telephone charges.
On days when you are not working, destination costs cannot be deducted. Similarly, the costs related to a spouse or other companion accompanying you cannot be deducted unless that person is your employee and is traveling for a reason genuinely related to your business.
If you travel outside the United States, the rules depend on the length of your trip. If your trip is shorter than seven days, you can deduct your transportation costs and the destination expenses for days you spend working. If your trip lasts more than seven days and you spend more than 75% of your time on business — for example, you spend eight of ten days at a business conference — the same rules apply. However, if you spend between 50% and 75% of your time on business, you may deduct only the business percentage of your transportation costs (you can still deduct destination costs for the days you spend working). And if you spend less than 50% of your time working, none of your costs are deductible.
Although these rules may already seem complicated, there are many more that are too detailed to cover here. Because there has been a lot of taxpayer abuse, the IRS has really gone to town in imposing restrictions on travel deductions. As a result, there are special rules for cruises, conventions, side trips, and more. For all the details, read IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.