Travel Expenses: What Counts and When They’re Tax Deductible

Key takeaways

• Travel expenses are costs incurred while traveling away from your tax home for business purposes.
• Only “ordinary and necessary” business travel expenses are deductible; unreasonable, lavish, or personal expenses are not.
• Employees are considered to be traveling for tax purposes when work obligations require them to be away from their tax home long enough to need sleep or rest.
• Self-employed individuals can generally deduct qualifying travel expenses; most employees cannot deduct unreimbursed travel expenses under current tax law.
• Keep detailed records and receipts to substantiate reimbursements or deductions.

What are travel expenses?

Travel expenses are costs directly connected with business travel away from your regular place of business (your “tax home”). Typical business travel includes attending conferences, meetings, or performing work duties that require staying overnight or otherwise being away long enough to require rest or sleep.

Regular commuting between home and your main workplace is not a travel expense.

Common deductible travel expenses

Examples of ordinary and necessary travel expenses (when incurred for business) include:
* Airfare, train, ferry, or other transportation to the business destination
* Lodging while away from home on business
* Local transportation (taxis, rideshares, buses, trains) at the destination
* Business meals (subject to applicable limits)
* Parking fees and tolls
* Dry cleaning and laundry during the trip
* Communication costs and computer rental needed for business
* Shipping of business materials, displays, or luggage
* Rental vehicle costs for the business portion of the trip

If you use a personal vehicle, you can deduct either actual business-use expenses or the standard mileage rate for business miles, plus tolls and parking. Expenses for personal side trips (for example, driving to visit family while on a business trip) are not deductible.

What qualifies as deductible — who can deduct?

• Self-employed/business owners: May deduct ordinary and necessary travel expenses on their tax returns.
• Employees: Generally cannot deduct unreimbursed business travel expenses due to changes made by the Tax Cuts and Jobs Act. If an employer reimburses you under an accountable plan, the employer can deduct the reimbursement.
• Employers: Can deduct reasonable reimbursements or direct travel expenses paid for employees.

Special rules and limits

• Tax home: Your tax home is your main place of business. Travel deductions apply only when you are away from your tax home for business.
• Indefinite assignments: Travel expenses for an assignment expected to last more than one year (an indefinite work assignment) are not deductible.
• Reasonableness: The IRS disallows extravagant or lavish expenditures. Examples of potentially unreasonable items include luxury suites or exotic car rentals when a standard room or sedan would suffice.
• Business vs. personal: Only the business portion of mixed-purpose trips is deductible. Keep records to allocate costs between business and personal use.

Recordkeeping

Maintain clear documentation to support travel deductions or employer reimbursements:
* Receipts, invoices, canceled checks, or credit card statements
* Travel dates, destinations, purpose of the trip, and business contacts or activities
* Mileage logs and records of tolls and parking
* Records separating personal and business expenses for mixed trips

Practical examples

• Airfare and hotel for a three-day conference away from your tax home — deductible if for business.
• Taxi to the airport and rides during the conference — deductible.
• Dinner with a client — deductible as a business meal (subject to rules and limits).
• Drive from your hotel to visit relatives during a business trip — personal and not deductible.

Bottom line

Travel expenses can be deductible when they are ordinary, necessary, and incurred while traveling away from your tax home for business. Self-employed taxpayers and businesses generally can deduct qualifying expenses; most employees cannot deduct unreimbursed travel expenses under current law unless reimbursed by their employer. Accurate records and receipts are essential to substantiate deductions or reimbursements. Consult current IRS guidance or a tax professional for the latest rules and any updates.

Sources

Internal Revenue Service — Topic No. 511, Business Travel Expenses; Publication 463, Travel, Gift, and Car Expenses; Publication 5307, Tax Reform Basics for Individuals and Families.