The Right Way to Deduct Travel Expenses

Are you a consultant, railroad worker, truck driver or other business professional who often travels away from home? Then, this article is for you if you would like to make sure you are rightfully claiming all your travel expenses. You will also learn in what scenario, you may not be able to do so. Happy learning! 

If you travel for work, you may have deductible travel expenses. Travel expenses are those that are ordinary and necessary for traveling away from home for your business, profession, or job. For your travel expense to be ordinary, the expense must be one that is commonly incurred in your trade or business; to be necessary, the travel expense must be one that is appropriate for your business. Some examples of travel expenses you can deduct are: 

• Transportation between your home and your business destination 
• Taxi, Uber, airport limousine
• Baggage and shipping  
• Car while being used to travel away from home on business including related tolls and parking 
• Lodging and meals for overnight trips or travel that requires a long enough period for sleep or rest to properly perform your duties 
• Dry cleaning and Laundry 
• Telephone – business calls while on your trip including facsimile
• Tips given for transportation, meals, lodging, etc. 

For purposes of deducting these travel expenses, your travel must be temporary and not for an indefinite work assignment (one expected to last more than one year) away from your normal place of business. 

How to qualify for deducting your travel expenses 

You must be traveling away from home for business to be allowed a deduction for travel expenses. The IRS defines your home as being one of the following: 

• Your regular place of business
• If no regular place of business, then the regular place you live 

If you have neither a regular place of business or where you live, your home for tax purposes will be wherever you work and therefore you will NOT be able to claim travel expenses. 

How to claim your travel expenses 

If you operate your business as a sole proprietorship, you will claim these expenses on the Schedule C of your 1040 tax return.  If you operate as a corporation or partnership, you will deduct your travel expenses on your related tax forms.  However, if you are incurring these expenses as an employee and are not reimbursed by your employer for these expenses, for tax years 2018-2025, you will not be able to claim these expenses as an unreimbursed employee expense, so be sure to request reimbursement. 

For Whom May You Claim Travel Expenses for? 

In general, if your dependents or spouse accompanies you on a trip, you cannot deduct their travel expenses.  You can deduct the cost of travel for the following persons: 

• Your employee who has a bona fide business purpose for going (NOT for incident services like typing notes, etc.) 
• Business associate (i.e., customer, client, supplier, agent, partner, or professional advisor) 

Record-keeping needed to protect your deduction  

If you are ever audited, the burden of proof will be on you to prove your travel expenses and any other business expenses for that matter. It is highly recommended that you maintain your receipts, logs, flyers, and any other documentation that will help prove your travel was indeed business related and therefore deductible. Documentary evidence shows the amount, date, place, and the character of the expense. See Chapter 5 of the IRS Publication 463 for more information on record-keeping. 

Travel Expense Schemes to Avoid 

One of the most common mistakes taxpayers make is trying to make personal trips for business to get the travel expense deduction. You can only deduct ALL your travel expenses if the trip is ALL for business. If your primary purpose for travel was for a vacation or other personal reason, the cost of the trip will be non-deductible, but you would be able to deduct any expenses you incur while at your destination that are directly related to your business. 

Another example of a scheme would be incurring lavish and extravagant meals and other travel expenses. The IRS is clear that only expenses that are ordinary and necessary (defined above) are allowable for deduction. 

Check out some of the IRS examples for determining if your trip has a business purpose by clicking here. 

In closing, deducting travel expenses requires you to first have a tax home that you are traveling away from. Second, have a bona fide business purpose for the travel and lastly, consider only employees with a business purpose of attending the trip and business associates when determining what costs to include in your deduction. Whether you have a trip that is all for business or partly for business, your business-related travel expenses will be deductible. Record-keeping is kept in proving the nature of your deduction and the amount.