IRS Publication 463: Travel, Gift, and Car Expenses

What Publication 463 covers

IRS Publication 463 explains which business-related travel, gift, and vehicle expenses an individual taxpayer can deduct. It is most relevant to:

• Sole proprietors and other self-employed taxpayers reporting business income on Schedule C.
• Certain employees who may still deduct business expenses using Form 2106 (for example, some Armed Forces reservists, qualified performing artists, and certain state/local officials).
• Individuals seeking guidance on recordkeeping and how to report deductions.

Partnerships, corporations, and trusts should consult the instructions for their tax forms and IRS Publication 535 for business-expense rules that apply to those entities.

Core principles

Expenses must be “ordinary and necessary” for the conduct of business to be deductible. That means they are common in the taxpayer’s trade or helpful to the business. Personal expenses are not deductible.

Publication 463 is organized into chapters covering travel; meals and entertainment; gifts; transportation (including vehicle use); recordkeeping; and how to report expenses.

Key points at a glance

• Seek employer reimbursement first—reimbursed business expenses generally aren’t taxable to the employee and avoid the need for a deduction.
• Travel expenses are generally deductible only when incurred while traveling away from the taxpayer’s tax home for business.
• Most business entertainment expenses are nondeductible. Business meal costs are generally 50% deductible (with limits and documentation requirements).
• Business gifts to any one person are generally deductible only up to a small annual limit per recipient.
• Vehicle use for business can be deducted using the IRS standard mileage rate or by claiming actual vehicle expenses (gas, repairs, insurance, depreciation).
• Good records are essential: dates, amounts, business purpose, and receipts or logs supporting each expense.
• Where to report: self-employed income and expenses are reported on Schedule C. Some employee business expenses were limited by recent tax law changes; certain eligible employees use Form 2106.

Travel

Deductible travel expenses generally apply when a taxpayer is away from their tax home overnight or otherwise has to sleep or rest to meet the demands of business travel. Typical deductible items include:

• Transportation to and from the business destination (airfare, train, car).
• Lodging.
• Meals (subject to percentage limits).
• Incidental expenses related to travel.

Commuting between home and a regular work location is generally not deductible.

Meals and entertainment

• Entertainment expenses—those primarily for amusement, recreation, or social purposes—are generally nondeductible.
• Business meals are typically only partly deductible (commonly 50%). They must not be lavish, and the taxpayer must substantiate the business purpose, attendees, date, and cost.
• Separate charges for meals at entertainment events may be deductible to the extent they meet meal-deduction rules.

Gifts

• Business gifts to individuals are deductible only up to the IRS per-recipient limit (check current rules for the applicable dollar limit).
• Gifts of entertainment are not deductible.
• Promotional items or low-cost advertising materials intended for general distribution may be treated differently—confirm treatment with current IRS guidance.

Transportation and vehicle expenses

• Commuting to and from a regular workplace is nondeductible.
• Travel between business locations or to temporary work locations may be deductible.
• Vehicle expenses can be determined by:
• The standard mileage rate set annually by the IRS (multiply business miles driven by the rate), or
• The actual expense method (sum of gas, repairs, insurance, registration, depreciation, etc.).
• Choose the method that yields the larger deduction, but rules govern switching between methods and how depreciation is handled.
• Employees generally cannot deduct unreimbursed vehicle expenses under the post-reform rules that limit miscellaneous itemized deductions for many taxpayers; self-employed individuals deduct vehicle expenses on Schedule C.

Recordkeeping

Accurate, contemporaneous records are crucial. Keep:

• Receipts and invoices for expenses.
• A mileage log or electronic record showing date, business purpose, starting and ending locations, and miles driven for each business trip.
• Documentation of the business purpose and attendees for meals or gift expenses.
• Any employer reimbursement records or accountable plan documentation.

How to report

• Self-employed taxpayers: report income and allowable business expenses on Schedule C (or other applicable business forms).
• Employees with eligible special-status deductions: use Form 2106 where applicable.
• Itemized deductions (Schedule A) historically included certain unreimbursed employee business expenses, but tax-law changes have limited or suspended many of those deductions for most taxpayers—check current rules.

Final notes

Publication 463 provides detailed rules, examples, and recordkeeping guidance. Tax rules and deduction limits change over time, so consult the current edition of Publication 463 and consider professional tax advice to determine how the rules apply to your situation.