Knowing what you can claim as a tax deduction as you travel for business is important. You’ll also need to track your expenses diligently in order to claim them properly.
The IRS states that business travel is when you travel from your tax home for “substantially longer than an ordinary day’s work that requires you to sleep or rest away from home.” The travel must also be “temporary,” lasting less than a year in order to deduct these costs.
Your “tax home” is where you do business. It could be your company’s workplace or a designated room in your home.
What is Per Diem and How Does It Apply to Business Deductions?
Per Diem, or per day, are amounts that are considered reasonable for daily expenses during travel, for meals and miscellaneous expenses.
Since rates can vary from location to location, most businesses use the per diem rates set by the U.S. Government. However, businesses can also set their own rates.
Any excess is taxable if the business traveler gets more per day than the maximum rate set by the General Services Administration.
No Deduction for Frequent Flyer Miles Used
If your frequent flyer miles cover $500 of a ticket that costs $600, you can only claim $100 as an air travel business expense.
What Components of a Hotel Expense are Deductible?
You can deduct the actual room charge, taxes, phone calls, fax use, and laundry charge. However, charges for gym use, movies, or games are not deductible.
Are Meals Deductible?
You can deduct 50% of your meal, including the tax and tip. This applies only if the meal was on route to or at your business destination.
A Cruise May Be Deductible
The IRS caps the cruise deduction at $2000, and you must prove the cruise was directly related to a business event.
Here are the IRS’ per day limits on cruises as a business deduction as of 2018.
Dates and Highest Federal Per Diem Daily Limit on Luxury Water Travel
- January 1 – March 31 $996
- April 1 – April 30 $726
- May 1 – May 31 $700
- June 1 – September 30 $792
- October 1 – October 31 $750
- November 1 – November 30 $728
- December 1 – December 31 $940
What About a Business/Personal Trip?
For a trip to be deductible, the IRS states the main purpose of the trip must be for business. However, if there is “incidental” personal time, the trip as a whole can still be deducted. For example, if you take a business trip to Florida and spend an evening with family in the area, that’s considered “incidental” to the main purpose of the trip.
Is Bringing Along a Spouse Deductible?
You must be able to prove anyone you bring along is employed by the business and is performing significant business-related tasks while along on the trip. Otherwise, the expenses incurred by a spouse, child, or any other person that is along for the trip are considered personal expenses and cannot be used as deductions.
How Long Do I Need to Keep Records and Receipts?
According to the Internal Revenue Service, “you must keep records that support your
deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. A return filed early is considered filed on the due date.”
Like with a lot of tax planning, unless you seek to understand what you can do to plan your tax payments effectively you’ll end up paying more tax than you’re legally required to do. Therefore if you travel for your business or are an employee who travels for a company, you’ll want to claim all the deductions you can.
The above list will help guide you but remember to seek professional advice from a tax expert. The Internal Revenue Service also offers a worksheet example of how to keep your deductions in order. Many retailers carry a similar “booklet” that you might consider purchasing to keep things easy.