What are Travel Expenses?
For tax purposes, travel expenses are costs associated with traveling for the purpose of conducting business-related activities. Reasonable travel expenses can generally be deducted from taxable income by a business when its employees incur costs while traveling away from home specifically for business purposes. Those business purposes can include conferences or meetings.
Individual wage earners can no longer deduct unreimbursed business expenses. That deduction was one of many eliminated by the Tax Cuts and Jobs Act of 2017.
While many travel expenses can be deducted by businesses, those that are deemed unreasonable, lavish, or extravagant, or expenditures for personal purposes, may be excluded.
The Internal Revenue Service (IRS) considers employees to be traveling away from home if their business obligations require them to be away from their "tax home" (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.
- Travel expenses are tax deductible only if incurred for the purpose of conducting business-related activities.
- Only ordinary and necessary travel expenses are deductible. Expenses that are deemed unreasonable, lavish, or extravagant are not deductible
- The IRS considers employees to be traveling away from home if their business obligations require them to be away from their "tax home” substantially longer than an ordinary day's work.
- Examples of deductible travel expenses include airfare and lodging, transport services, cost of meals and tips, and the use of communications devices.
- Travel expenses incurred while on an indefinite work assignment that lasts more than one year are not deductible for tax purposes.
Understanding Travel Expenses
Well-organized records—such as receipts, canceled checks, and other documents that support a deduction—can help individuals get reimbursed by their employer and help their employers prepare tax returns. Examples of travel expenses can include:
- Airfare and lodging for the express purpose of conducting business away from home
- Transport services such as taxis, buses, or trains to the airport or to and around the travel destination
- The cost of meals and tips, dry cleaning service for clothes, and the cost of business calls during business travel away from home
- The cost of computer rental and other communications devices while on the business trip
Travel expenses do not include regular commuting fees.
Types of Travel Expenses
The use of one’s personal vehicle in conjunction with a business trip, including actual mileage, tolls, and parking fees, can be included as a travel expense. The cost of using rental vehicles can also be counted as a travel expenset, hough only for the business-use portion of the trip. For instance, if in the course of a business trip, a traveler visited a family member or acquaintance, the cost of driving from the hotel to visit them would not qualify for travel expense deductions.
Travel expenses incurred while on an indefinite work assignment which lasts more than one year are not deductible for tax purposes.
The IRS allows other types of ordinary and necessary expenses to be treated as related to business travel for deduction purposes. Such expenses can include transport to and from a business meal, the hiring of a public stenographer, payment for computer rental fees related to the trip, and the shipment of luggage and display materials used for business presentations.
Travel expenses can also include operating and maintaining a house trailer as part of the business trip.
Can I Deduct My Business Travel Expenses?
Business travel expenses can no longer be deducted by individuals.
If you are self-employed or operate your own business, you can deduct those "ordinary and necessary" business expenses from your return.
If you work for a company and are reimbursed for the costs of your business travel, your employer will deduct those costs at tax-time.
Do I Need Receipts for Travel Expenses?
Yes. Whether you're an employee claiming reimbursement from an employer or a business owner claiming a tax deduction, you need to prepare to prove your expenditures. Keep a running log of your expenses and file away the receipts as backup.
What Are Reasonable Travel Expenses?
Reasonable travel expenses, from the viewpoint of an employer or the IRS, would include transportation to and from the business destination, accommodation costs, and meal costs. Certainly, business supplies and equipment necessary to do the job away from home are reasonable. Taxis or Ubers taken during the business trip are reasonable.
Unreasonable is a judgment call. The boss or the IRS might well frown upon a bill for a hotel suite instead of a room, or a sports car rental instead of a sedan.
The Bottom Line
Individual taxpayers need no longer fret over recordkeeping for unreimbursed travel expenses. They're no longer tax deductible by individuals, at least until 2025 when the provisions in the latest tax reform package are due to expire or be extended.
If you are self-employed or own your own business, you should keep records of your business travel expenses so that you can deduct them properly.