Heads up: this article is only relevant for U.S. businesses.
Traveling for business is expensive. The good news is, you can deduct the cost of business travel on your tax return. The bad news? It’s a tricky deduction to master.
Did you know that expenses incurred when you travel in your hometown are claimed differently to travel expenses you incur when you’re far away from home?
And how do you deduct the cost of a trip when the lines between business and personal travel are blurred?
Read on for a look at the grey areas of claiming business travel, and make sure you’re getting the most out of the deduction.
What counts as “business travel”?
In order for a trip to qualify as business travel in the eyes of the IRS (and therefore be an eligible tax deduction) it has to be ordinary, necessary, and away from your tax home.
Your tax home is the entire city or area in which you conduct business, regardless of where your main residence is. For a trip to qualify as business travel, you need to be traveling away from your tax home for longer than a normal day’s work, requiring you to sleep or rest en route.
How to deduct the cost of business travel
Most business owners are on top of standard travel deductions including travel, meals, entertainment. When a trip has business and personal motivations, only certain expenses from the trip can be deducted.
Mixing business and pleasure
When you travel for business, there’s no reason why you can’t tack a couple of days onto the trip for fun. Just be aware that while the business portion of your trip is deductible, you cannot deduct any expenses from the additional days you stayed for personal reasons.
You are, however, able to deduct the cost of the flight home (even if it is three days after your business engagements ended) provided your trip was primarily for business in the first place.
Traveling with family or friends
It’s possible to bring family and friends along on business trips, but you won’t be able to deduct any expenses for individuals who are not employees of the business or who do not serve a bona fide business purpose. The general rule here is that when traveling with family or friends, you can deduct business expenses, but nothing more than you would have deducted when traveling alone.
For instance, if you bring your spouse and stay in a standard hotel room, the cost of the hotel is still a deductible expense. On the other hand, if you bring your spouse and kids, and therefore require a second hotel room, only the first hotel room can be claimed.
Always remember that in each instance, especially when it comes to more complex examples like these, it’s crucial to keep records that include the amount of each expense, as well as dates of return/departure, details of the trip (whom you met with), and the business reason for the trip. Keeping solid records of business travel will save you time and accounting headaches come tax season.