So you want to attend a conference or a training out of town and you need to know how much you can deduct as a business expense. This blog post covers guidance listed in IRS Publication 463 Travel, Gift and Car Expenses.
The IRS defines travel expenses much the same as other business expenses, as ordinary and necessary for your business. This does not mean you were required to incur the expense. It means the expense is common and accepted in your type of business and that the expense is helpful and appropriate for your business.
Travel expenses are those that require you to be away from your tax home (usually the general area you operate your business) for substantially longer than an ordinary day of work and you need to sleep or rest during your trip. Special rules apply if you have a temporary work location away from your previous tax home. If the location of your tax home is not clear, see IRS Publication 463 or for additional guidance.
If you are certain you are traveling away from your main business location and tax home, the guidance below will explain what you can deduct for business.
You can deduct the cost of transportation by air, bus, car, taxi or uber, baggage and shipping costs, mileage, hotel, meals, dry cleaning or laundry while away, phone, wifi and other reasonable and business related expenses.
If you have a mix of business and personal expenses on one bill, you need to separate them out. For example, if your hotel bill covers some business related days and some personal days, only deduct the business related portion of your stay. If you rented a movie in your hotel room, separate out the movie expense and do not deduct it.
You can deduct travel related expenses for you and your employees if you and they are traveling for a legitimate business purpose. You can take along a spouse or friend who is not attending for a business purpose, but you cannot deduct their expenses.
For example, you will deduct your airfare costs but not your companions airfare. If you stay in one hotel room that you would have had to rent anyway for yourself, you can deduct the cost of the room. If you rent an additional room for your companion, you can only deduct the cost of your room. If you share an Uber from the airport to the hotel, you would have incurred that cost anyway and can deduct the cost of the Uber trip.
You can deduct 50% of reasonable meal expenses, even expensive meals as long as they are not lavish or extravagant. Lavish and extravagant is not defined so you will want to be prepared to explain why a meal was reasonable and not lavish.
As an alternative to deducting 50% of actual meal expenses, you can pay yourself a per diem rate. A per diem is a daily amount based on the location of your travel which covers meals and incidental expenses (M&IE). You would take the per diem in lieu of actual meal expenses. The M&IE per diem rates for the 48 contiguous states are published by the GSA. To find per diem rates for the US city you are traveling to, use the GSA Per Diem Lookup. Enter location or zip code and the dates of travel. On the search results page, you scroll down to the section that says "Meals & Incidentals (M&IE) Breakdown" and see the per diem rate for meals and incidental expenses per day as well as the day of travel. The per diem for a travel day is 75% of the full day rate.
Note: The GSA only lists per diem rates for the 48 continuous states. For Alaska, Hawaii and US territories use the the most recently dated Civilian Per Diem Bulletin and search for the location to which you are traveling. For foreign travel, use the Office of Allowance Foreign Per Diem Rates by Location lookup. Be sure to use the M&IE rate.
Travel Within the US
If your trip was entirely for travel you can deduct all of the business expenses related to the trip.
The trip needs to be primarily for business to be deductible. If you added on a few days for personal travel, you can only deduct the business portion of your trip. For example, if you attend a 4-day conference and stay an extra two days for personal reasons, you can deduct your airfare or mileage to and from the the conference, plus meals or per diem and car expenses on the conference days only. The hotel, meal and other expenses incurred on the personal days are not deductible.
If more than half of your trip was for personal reasons, you cannot deduct the travel costs of your trip. You can deduct business expenses you had while on the trip. For example, if you go on a 6 day trip and while there you spend one day doing paperwork, sending emails, making phone calls and you send a fax, you can deduct the wifi, phone and fax costs associated with your business activities. But you cannot deduct any part of the airfare, hotel, meals or a per diem rate.
Travel Outside the US
If your travel is outside the US there are several ways to be able to deduct the cost of the trip. However, if you have days that were not for business, you generally must separate out business and personal expenses. You only deduct expenses such as hotel, meals and related expenses for business related travel days.
Special rules apply if a portion of your trip is inside and a portion is outside the US. See IRS Publication 463 for additional guidance.
If your trip outside of the US was primarily for personal reasons, you cannot deduct the costs of the trip but you can deduct specific costs related to work done while on the trip.
If you have business related travel on a cruise, there is a limit on the amount you can deduct equal to twice the highest federal per diem rate. Rates are updated by year so consult the latest publication rates.
You can deduct the cost of attending conventions and meetings if you can show it benefits your business. However, if the convention or meeting is outside of North America, additional rules apply. You must show:
To determine reasonableness of holding a meeting outside of North America, consider the business purpose, activities taking place, purpose and activities of sponsoring organizations, homes of active members of sponsoring organizations and other locations which meetings have been held and other relevant factors.
The North American area includes: American Samoa, Antigua and Barbuda, Aruba, Bahamas, Baker Island, Barbados, Bermuda, Canada, Costa Rica, Curaçao, Dominica, Dominican Republic, Grenada, Guam, Guyana, Honduras, Howland Island, Jamaica, Jarvis Island, Johnston Island, Kingman Reef, Marshall Islands, Mexico, Micronesia, Midway Islands, Northern Mariana Islands, Palau, Palmyra Atoll, Panama, Puerto Rico, Saint Lucia, Trinidad and Tobago, USA, U.S. Virgin Islands, Wake Island.
You can deduct up to $2,000 per year of conventions, seminars or meetings held on a cruise ship if it is related to the active conduct of your business, the vessel is registered in the US, all ports of call are in the US or in the possession of the US, and you attach to your tax return a statement from you and one from the sponsoring organization specific information about the trip.
You will generally be able to deduct travel expenses outside your tax home area if the primary purpose of the trip is for business. You will not usually be allowed to deduct personal expenses incurred during a business trip. It is always a good idea to consult a tax professional prior to taking a business trip to ensure you plan and arrange your trip to be able to take the maximum deductions.
Questions: email [email protected]
Jennie Schottmiller, LMFT, CPA is a licensed marriage and family therapist who practiced as a CPA prior to becoming a therapist. She has an active solo therapy practice and runs a facebook group for clinicians and offers courses to help small business owners with accounting, tax and financial analysis matters.
Disclaimer: This blog is for education only. Please consult with a qualified professional when you have any questions about your personal accounting, tax or legal situation. Information contained in this post is for informational purposes only and not intended to replace professional advice.