Ed note: We often hear about the elusive tax-deductible vacation, but it often sounds too good to be true. The good news – a lot of travel is deductible, as long as you’re doing a lot of work while traveling. The Tax Institute is here to explain. Leer en español.
When you are traveling away from your usual business location, you may be able to deduct ordinary and necessary expenses that are related to your work.
So which expenses can I deduct?
When you are away from your tax home, either overnight or on a temporary assignment, you can deduct transportation costs, including airfare, train, taxi or bus fares. You can also deduct expenses for the operation and maintenance of a vehicle – using either actual expenses or the standard mileage rate. Don’t forget tolls and parking, too!
You can deduct meals and lodging if the business trip is overnight or long enough that you need to rest. Meals include amounts for food/ beverages, taxes and related tips. Watch out for the 50% limitation on meal deductions. You can figure the meal expense using the actual cost or the standard meal allowance, but you can only deduct 50% of the costs. This limitation is bumped up to 80% for certain transportation workers.
Other expenses you can deduct while away include:
- Dry cleaning or laundry
- Tips
- Baggage charges
- Business equipment expenses, such as the use of fax machines, phones or other communication devices.
If you need it or it is an ordinary expense in your field, then you can deduct it.
So can I get a free vacation out of this business trip?
Business expense deductions are all about your primary purpose for travel and how you spend most of your time.
- If your trip is primarily for business, the costs of traveling to and from the destination are deductible. However, if the trip is primarily for personal purposes the travel costs are not deductible.
- If you have traveled away primarily for personal reasons but spend some time on work, then expenses while at the destination which are attributable to business are deductible.
- If you spend most of your time away on business and only take a little bit of time away for sightseeing activities, then the personal expenses to do the sightseeing are not deductible, but the other costs of travel and for business are.
If you spend part of your travel time on activities with a business purpose and part for personal purposes, then you probably will not be able to deduct your travel expenses, but can deduct expenses related to business activities while away.
How about international trips?
When traveling outside of the U.S., your deductions may be limited. If your trip is entirely for business purposes, you can deduct all your travel expenses of getting to and from your business destination. If you do not spend all your time away on business, you may fit into one of the following exceptions allowing you to qualify for the deduction:
- Your trip is considered to be entirely for business if you did not have substantial control over arranging the trip.
- If you are out of the country for one week or less (7 days), including business and non-business activities, then you will be considered to be away for business purposes.
- You were gone for more than a week and spent less than 25% of your time on personal activities.
- Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration.
If you don’t meet one of these exceptions, you will need to allocate your expenses based on what is spent on business and what is personal. Publication 463 will help you with this calculation. For example, if your trip was primarily for personal reasons, the entire cost is a non-deductible personal expense, but you can deduct any expenses at your destination that are directly related to your business.
How about cruises?
You can deduct up to $2,000 a year for expenses of going to conventions, seminars or business meetings that take place on a cruise ship. The meeting must be directly related to your business, the ship must be registered in the U.S. and all of the ship’s ports of call must be in the U.S. or possessions of the U.S. Lastly, there are filing requirements. You must attach two written statements. The first must include:
- The total days of the trip (excluding travel to and from the ship)
- The number of hours each day spent attending scheduled business activities
- The program of the convention’s scheduled business activities
The second statement should be signed by an officer of the sponsoring organization and include:
- A schedule of each day’s business activities
- The number of hours the taxpayer attended those activities
Take notes!
You need to be able to substantiate the expenses. It doesn’t have to be a complex spreadsheet; it can be as simple as a notepad where you consistently keep track of the expenses. Receipts are good, too!
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