You don’t have to fly first class and stay at a fancy hotel to claim travel expense tax deductions. Conferences, worksite visits, and even a change of scenery can (sometimes) qualify as business travel.
What counts as business travel?
The IRS does have a few simple guidelines for determining what counts as business travel. Your trip has to be:
- Mostly business
- An “ordinary and necessary” expense
- Someplace far away from your “tax home”
What counts as "mostly business"?
The IRS will measure your time away in days. If you spend more days doing business activities than not, your trip is considered "mostly business". Your travel days are counted as work days.
Special rules for traveling abroad
If you are traveling abroad for business purposes, you trip counts as "entirely for business" as long as you spend less than 25%of your time on personal activities (like vacationing). Your travel days count as work days.
So say you you head off to Zurich for nine days. You've got a seven-day run of conference talks, client meetings, and the travel it takes to get you there. You then tack on two days skiing on the nearby slopes.
Good news:Your trip still counts as "entirely for business." That's because two out of nine days is less than 25%.
What is an “ordinary and necessary” expense?
“Ordinary and necessary” means that the trip:
- Makes sense given your industry, and
- Was taken for the purpose of carrying out business activities
If you have a choice between two conferences — one in your hometown, and one in London — the British one wouldn’t be an ordinary and necessary expense.
What is your tax home?
A taxpayer can deduct travel expenses anytime you are traveling away from home but depending on where you work the IRS definition of “home” can get complicated.
Your tax home is often — but not always — where you live with your family (what the IRS calls your "family home"). When it comes to defining it, there are two factors to consider:
- What's your main place of business, and
- How large is your tax home
What's your main place of business?
If your main place of business is somewhere other than your family home, your tax home will be the former — where you work, not where your family lives.
For example, say you:
- Live with your family in Chicago, but
- Work in Milwaukee during the week (where you stay in hotels and eat in restaurants)
Then your tax home is Milwaukee. That's your main place of business, even if you travel back to your family home every weekend.
How large is your tax home?
In most cases, your tax home is the entire city or general area where your main place of business is located.
The “entire city” is easy to define but “general area” gets a bit tricker. For example, if you live in a rural area, then your general area may span several counties during a regular work week.
Rules for business travel
Want to check if your trip is tax-deductible? Make sure it follows these rules set by the IRS.
1. Your trip should take you away from your home base
Agood rule of thumb is 100 miles. That’s about a two hour drive, or any kind of plane ride. To be able to claim all the possible travel deductions, your trip should require you to sleep somewhere that isn’t your home.
2. You should be working regular hours
In general, that means eight hours a day of work-related activity.
It’s fine to take personal time in the evenings, and you can still take weekends off. But you can’t take a half-hour call from Disneyland and call it a business trip.
Here's an example. Let’s say you’re a real estate agent living in Chicago. You travel to an industry conference in Las Vegas. You go to the conference during the day, go out in the evenings, and then stay the weekend. That’s a business trip!
3. The trip should last less than a year
Once you’ve been somewhere for over a year, you’re essentially living there. However, traveling for six months at a time is fine!
For example, say you’re a freelancer on Upwork, living in Seattle. You go down to stay with your sister in San Diego for the winter to expand your client network, and you work regular hours while you’re there. That counts as business travel.
What about digital nomads?
With the rise of remote-first workplaces, many freelancers choose to take their work with them as they travel the globe. There are a couple of requirements these expats have to meet if they want to write off travel costs.
Requirement #1:A tax home
Digital nomads have to be able to claim a particular foreign city as a tax home if they want to write off any travel expenses. You don't have to be there all the time — but it should be your professional home base when you're abroad.
For example, say you've rent a room or a studio apartment in Prague for the year. You regularly call clients and finish projects from there. You still travel a lot, for both work and play. But Prague is your tax home, so you can write off travel expenses.
Requirement #2:Some work-related reason for traveling
As long as you've got a tax home and some work-related reason for traveling, these excursion count as business trips. Plausible reasons include meeting with local clients, or attending a local conference and then extending your stay.
However, if you’re a freelance software developer working from Thailand because you like the weather, that unfortunately doesn't count as business travel.
The travel expenses you can write off
As a rule of thumb, all travel-related expenses on a business trip are tax-deductible. You can also claim meals while traveling, but be careful with entertainment expenses (like going out for drinks!).
Here are some common travel-related write-offs you can take.
🛫 All transportation
Any transportation costs are a travel tax deduction. This includes traveling by airplane, train, bus, or car. Baggage fees are deductible, and so are Uber rides to and from the airport.
Just remember: if a client is comping your airfare, or if you booked your ticket with frequent flier miles, then it isn't deductible since your cost was $0.
If you rent a car to go on a business trip, that rental is tax-deductible. If you drive your own vehicle, you can either take actual costs or use the standard mileage deduction. There's more info on that in our guide to deducting car expenses.
🏨 Lodging
Hotels, motels, Airbnb stays, sublets on Craigslist, even reimbursing a friend for crashing on their couch: all of these are tax-deductible lodging expenses.
🥡 Meals while traveling
If your trip has you staying overnight — or even crashing somewhere for a few hours before you can head back — you can write off food expenses. Grabbing a burger alone or a coffee at your airport terminal counts! Even groceries and takeout are tax-deductible.
One important thing to keep in mind: You can usually deduct 50% of your meal costs. For 2021 and 2022, meals you get at restaurants are 100% tax-deductible. Go to the grocery store, though, and you’re limited to the usual 50%.
{upsell_block}
🌐 Wi-Fi and communications
Wi-Fi — on a plane or at your hotel — is completely deductible when you’re traveling for work. This also goes for other communication expenses, like hotspots and international calls.
📦 Shipping
If you need to ship things as part of your trip — think conference booth materials or extra clothes — those expenses are also tax-deductible.
👔 Dry cleaning
Need to look your best on the trip? You can write off related expenses, like laundry charges.
{write_off_block}
Travel expenses you can't deduct
Some travel costs may seem like no-brainers, but they're not actually tax-deductible. Here are a couple of common ones to watch our for.
The cost of bringing your child or spouse
If you bring your child or spouse on a business trip, your travel expense deductions get a little trickier. In general, the cost of bring other people on a business trip is considered personal expense — which means it's not deductible.
You can only deduct travel expenses if your child or spouse:
- Is an employee,
- Has a bona fide business purpose for traveling with you, and
- Would otherwise be allowed to deduct the travel expense on their own
Some hotel bill charges
Staying in a hotel may be required for travel purposes. That's why the room charge and taxes are deductible.
Some additional charges, though, won't qualify. Here are some examples of fees that aren't tax-deductible:
- Gym or fitness center fees
- Movie rental fees
- Game rental fees
{email_capture}
Where to claim travel expenses when filing your taxes
If you are self-employed, you will claim all your income tax deduction on the Schedule C. This is part of the Form 1040 that self-employed people complete ever year.
What happens if your business deductions are disallowed?
If the IRS challenges your business deduction and they are disallowed, there are potential penalties. This can happen if:
- The deduction was not legitimate and shouldn't have been claimed in the first place, or
- The deduction was legitimate, but you don't have the documentation to support it
When does the penalty come into play?
The 20% penalty is not automatic. It only applies if it allowed you to pay substantially less taxes than you normally would. In most cases, the IRS considers “substantially less” to mean you paid at least 10%less.
In practice, you would only reach this 10%threshold if the IRS disqualified a significant number of your travel deductions.
How much is the penalty?
The penalty is normally 20% of the difference between what you should have paid and what you actually paid. You also have to make up the original difference.
In total, this means you will be paying 120% of your original tax obligation: your original obligation, plus 20% penalty.
At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email [email protected] with your questions.
