What Travel Expenses Does the IRS Allow?
It’s a common question and one whose rules you should understand.
The IRS scrutinizes the validity of all of your business expenses, but there are some that it considers especially carefully, like the home office deduction and car and truck expenses. Perhaps the one they look at most closely is money spent on travel, a category for which there are clear restrictions.
business vs personal
It might be tempting to schedule a couple of business meetings in a city where you’re vacationing and write off the whole trip. But this isn’t a legitimate use of the Schedule C travel category. If you take a trip that has a definite business purpose and you tack on a few vacation days, it is allowable to divide your expenses into business and personal. You would only claim the percentage that’s devoted to business.
What’s a Tax Home?
According to the IRS, a tax home is the city or general area where your main place of business or work is located, regardless of where you maintain your family’s home. So if you live in Kentucky and travel to a convention in Dallas, for example, you can deduct many of your expenses incurred on the trip as long as your attendance benefits your trade or business.
What’s Deductible?
You’ll enter you total travel expenses on this section of the IRS Schedule C.
It might be easier to tell you what’s not deductible than what is. The list is long, and we can’t be comprehensive here. The important thing to remember is that your travel expenses must be “ordinary and necessary.” You should be able to deduct:
The cost of your travel by airplane, train, bus or vehicle between your home and your business destination
Transportation (Lyft, Uber, taxi, etc.) between your arrival location, like an airport, and your hotel. You can also deduct transportation between your hotel and your business meeting place.
Use of your own vehicle, either the standard mileage rate or actual expenses, plus business parking fees and tolls
Shipping costs for baggage or business materials needed in your destination city
Laundry and dry cleaning
Business communications (phone, fax, etc.) while on your trip
Either 50% of the actual cost of business-related meals, or the standard meal allowance (ask us about this), and nothing lavish or extravagant
Tips for services related to deductible expenses, and
Additional necessary and ordinary expenses
How Should You Track Travel Expenses?
You should keep meticulous records of travel expenses. Each trip needs to include four types of information: the cost of each separate expenditure, the dates you left and returned (and number of days spent on business), your destination, and the purpose of your trip.
Paper records are fine, of course, items like cash register tapes, receipts, invoices, and any other kinds of proof that you spent money on a business-related need. Keep these carefully organized in file folders or large envelopes, one for each trip. And keep them for at least three years in case the IRS comes back at you with questions. The IRS will also accept electronic records in some cases.
A screenshot from Wave, a free small business accounting website owned by H&R Block.
Are you using some kind of personal finance or accounting website mobile app? There are many of them available. You can connect your online bank accounts to them and import transactions from checking accounts, credit cards, etc. They all allow you to categorize these transactions so you know which are tax related. The screenshot above is from Wave. Others include Intuit Mint and QuickBooks, Xero, and Quicken.
If you use one of these, don’t assume that the IRS will be able to read your electronic records if you get audited. But all of them include pre-formatted reports, some even geared toward taxes. You’ll still need to have your paper receipts, cancelled checks, etc., to provide as proof. But having a report may remind you of something you forgot to claim.
The Gray Area
If you haven’t started organizing your business expenses for the 2023 tax year, now’s the time to do it. We recommend you keep up as you go along so you don’t find yourself with an unorganized pile of random receipts when you start to prepare your taxes. You’re bound to miss some deductible ones.
Many business expenses are quite obvious, like office supplies and advertising and rent. But there’s a lot of gray area. We want you to use caution when you’re claiming iffy expenses, but we also want you to deduct every legitimate dollar you can. Let us know if you’d like to schedule a session with us to go over the basics of deducting business expenses on your tax return.
