- Learn about business travel deduction rules under the Tax Cuts and Jobs Act.
- Find out how to deduct transportation and meal expenses.
- Discover rules regarding deductions for trips that combine business and pleasure.
- Learn about other expenses that are not deductible.
As we continue to come out of the COVID-19 pandemic, you may be traveling again for business. Under tax law, a number of rules exist for business travel deductions (for travel within the United States). These rules apply if the business conducted out of town reasonably requires an overnight stay.
Note that under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses through 2025 on their own tax returns. Unreimbursed employee business expenses qualify as “miscellaneous itemized deductions.” These expenses do not qualify as deductions through 2025.
However, self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.
Fiducial has some of the rules that come into play with business travel deductions.
Business travel deductions: Transportation and meals
The actual costs of travel (for example, plane fare and cabs to the airport) are deductible for out-of-town business trips. You may also deduct the cost of meals and lodging. Your meals count as business travel deductions even if they do not include a business conversation or other business function. The Consolidated Appropriations Act includes a provision that removes the 50% limit on deducting eligible business meals for 2021 and 2022. The law allows a 100% deduction for food and beverages provided by a restaurant. Takeout and delivery meals provided by a restaurant also count as fully deductible.
No meal or lodging expenses considered “lavish or extravagant,” a term interpreted to mean “unreasonable,” qualify as deductible.
Personal entertainment costs on the trip aren’t deductible. However, business-related costs such as those for dry cleaning, phone calls, and computer rentals can be written off.
Combining business and pleasure
Some allocations may be required if the trip is a combined business/pleasure trip, for example, if you fly to a location for five days of business meetings and stay on for an additional period of vacation. Only the cost of meals, lodging, etc., incurred for the business days count as business travel deductions. Expenses incurred for the personal vacation days do not.
On the other hand, with respect to the cost of the travel itself (plane fare, etc.), if the trip is “primarily” business, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each (although this isn’t the sole factor).
If the trip doesn’t involve the actual conduct of business but is for the purpose of attending a convention, seminar, etc., the IRS may check the nature of the meetings carefully to make sure they aren’t vacations in disguise. Retain all material helpful in establishing the business or professional nature of this travel if you plan to claim business travel deductions for this trip.
The rules for deducting the costs of a spouse who accompanies you on a business trip are very restrictive. No deduction is allowed unless the spouse is an employee of you or your company, and the spouse’s travel is also for a business purpose.
Finally, note that personal expenses you incur at home as a result of taking the trip aren’t deductible. For example, the cost of boarding a pet while you’re away isn’t deductible. Have other questions about your small business deductions? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.