Business travel expenses are deductible to a business, but what if the trip combines both business activities and personal events? The deductibility of business expenses depends on where the trip takes place - within the United States, partially within the U.S., and entirely outside of the U.S. This article provides a summary of the IRS regulations on deductibility of business travel expenses in each of these three circumstances.
What is business travel?
Business travel is defined by the IRS as travel away from your tax home that is "substantially longer than an ordinary day's work" and that requires you to sleep or rest while away from home. You must also sleep away from home to be able to deduct these costs. The travel must also be "temporary" (lasting less than a year). Your tax home is your regular place of business, not your family home (unless you have a home based business); it's the place you are traveling from, for business expense purposes.
Business and Personal Travel within the U.S.
To deduct expenses for business travel within the U.S., the trip must be "entirely" business related. If you had some incidental personal travel within the trip - visiting family or taking a side trip, for example - the expenses relating to the personal activities (gas miles to someone's home or hotel at a personal location) are not deductible business expenses.
If the trip is primarily personal, like a vacation, you cannot deduct business expenses unless you can show that these expenses are directly related to your business. For example, if you take a vacation and spend a morning visiting a client, you can deduct the cost of the visit, but not the cost of getting from your tax home to the client's location.
Business and Personal Trips Partly in the U.S. and Partly Outside the U.S.
If you take a trip for business and personal reasons that is partly within the U.S. and partly outside the U.S., follow the IRS guidelines for the location of the tip. For example, if you spend three days within the U.S., the in-country rules (described above) apply, and if you then spend three more days in Canada, out-of-country rules apply.
Travel Outside the U.S.
If you travel outside the U.S. and you spend the entire time on business activities, you can deduct all of your travel expenses as business expenses. If you combine business and personal activities as part of an international trip, you must allocate your time between business activities and personal activities. The IRS has very specific rules and formulas for allocating time between business and personal days. See IRS publication 463 (link below) for the details.
Even if you don't spend all your time on business activities, your business expenses may be deductible if they meet at least one of four exceptions:
- If you had no "substantial control" over the arrangements for the trip. For example, if you must stay over a weekend outside the U.S. for business meetings on both Friday and Monday, you can't very well go back to your tax home just for the weekend.
- If you travel outside the U.S. for more than a week, your trip can be considered entirely for business, even if you combine business and personal activities.
- If you spend less than 25% of your time on personal activities during the trip
- Your trip can be considered entirely for business if you can establish that vacation was not a major consideration, even if you had control over the trip arrangements.
The IRS regulations are much more complicated than described in this article. For more details on deductions for business travel, see IRS publication 463.
For additional information on business travel expenses, see this article with answers to commonly asked questions about business travel expense deductions.
Record keeping for Travel Expenses
The key factor in being able to deduct business travel expenses is keeping good records. Save all itemized bills because some parts of a bill may be deductible while other parts are not. Record not only the location and time of a business meeting or event, but the purpose and what was discussed or what you did. The only way your CPA or tax advisor can tell what will be deductible as business travel expenses is by reviewing all your trip expenses and detailed logs.
Disclaimer This discussion of business travel expense deductions is general in nature and is intended to give you a broad background on the issue. This article and the content on this GuideSite is not intended to be tax or legal advice. The tax code is very complex and specific situations may differ; consult your tax advisor or CPA before you deducting business travel expenses.