Travel Expenses

Are they Deductible?

Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.

Bona fide business purpose. A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers, aren’t enough to make the expenses deductible.

 

Lavish or extravagant. You can’t deduct expenses for meals that are lavish or extravagant. An expense isn’t considered lavish or extravagant if it is reasonable based on the facts and circumstances. Expenses won’t be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts.

 

Trip Primarily for Business. You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

 

Trip Primarily for Personal Reasons. If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

           

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, won’t change what is really a vacation into a business trip.

To determine whether travel expenses are in pursuit of a trade or business, Treasury Regulation 1.162-2 states that travel expenses must be "reasonable and necessary" in the conduct of and directly attributable to the taxpayer’s business.

Travel expenses incurred primarily for personal activities are not deductible

When travel expenses include both a business and personal component, the deductibility of the travel expenses will depend upon the facts and circumstances of each case. The most important factor to consider is the length of time spent on business and personal activities during the trip. This, in conjunction with the primary purpose of the trip, will help determine if airfare or mileage is deductible and which portion of meals and lodging are deductible. Typically, if the primary purpose of the trip is business, the travel expense would be deductible.

 

If, however, the trip is personal and a business meeting occurs while on the trip, only that portion of any lodging or meals relating to the business meeting would be deductible as a business expense.

 

If a taxpayer claims a deduction for travel expenses, it is the taxpayer's responsibility to maintain sufficient records to substantiate the underlying purpose for the travel. Extensive records, dates, times of meetings, etc. are a good practice to substantiate such deductions. This can be confusing and the IRS has extensive guidelines available for typical and unique circumstances, including travel outside of the US and on cruise ships.

 

We always recommend double-checking with the IRS guidelines to make sure you are taking the deductions most appropriate for each set of circumstances.

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