As a small business owner or someone who is self-employed, tracking your business-related expenses and understanding what you can and can’t deduct while doing your taxes is critical. Not only can it maximize your small business deductions and save you lots of money, but it can also help you reduce your risk of being audited.
Some of the most common business-related expenses are travel costs. Whether you drive to meetings often or fly out for conferences and stay in hotels, understanding what is and isn’t considered a travel expense is an important aspect of small business accounting.
What Is a Travel Expense?
Travel expenses are costs that occur while you’re traveling away from home for business. If you’re on vacation with your family, your margaritas don’t count as travel expenses. However, if you’re traveling for a work-related conference, everything from your airfare or mileage to your hotel and food can count as business-related travel expenses. Personal expenses, such as a new pair of shoes, don’t count, even if you’re traveling when you make the purchase.
However, not all business-related travel expenses are deductible. According to the IRS, you can’t deduct anything extravagant or unnecessary, so don’t try ordering a private limo service to pick you up from the airport and writing it off. You also have to be traveling away from the general area considered your “tax home” for at least 1 workday to deduct your costs as travel expenses.
Different Types of Travel Expenses
There are several different kinds of travel expenses. Understanding what they are will help you identify what is and isn’t considered a travel expense.
If you’re on a work trip, any transportation services you use to get to and from work events can count as travel expenses. This category may include shuttles, buses, trains, taxis, and car rides. Generally, deductible trips include transportation from the airport to your hotel and back, as well as transportation between any work-related events or clients and your hotel.
Additionally, if you use your car to get around on a business trip, you can claim mileage on your taxes and deduct it at the standard mileage rate. According to the IRS, the mileage rate for 2020 is 57.5 cents per mile that you drive for business-related usage.
Airfare is also included as a travel expense if you choose to fly to your destination for a work-related trip. However, if you pay for your flight with frequent flyer miles or other rewards points or if a client provides your ticket, you’re not able to write off airfare as a travel expense.
Accommodations and Lodging
If you need to pay for overnight accommodations on a work trip, whether that’s a hotel or other type of lodging, it counts as a travel expense. Of course, your lodging costs have to be within reason, so don’t expect to be able to deduct a 5-star resort.
You can generally deduct 50% of the meals you consume while traveling away from your tax home for work, as long as they’re for non-entertainment purposes. While there’s no specified distance you must be from your house in order to deduct meals as a travel expense, the IRS does state that you can take the deduction when you’re away from home for longer than an ordinary workday and it’s necessary to stop somewhere to sleep. Multi-day trips are clearly applicable, but if you’re on a half-day trip to the next town over, it probably doesn’t count.
Miscellaneous Travel Expenses
While transportation, airfare, lodging, and food are the most common travel expenses, they’re far from the only ones. Travel expenses can also include the following:
- Shipping and handling costs for luggage or work-related materials to and from your destination
- Business-related communication (business calls or faxing, for example)
- Tips paid for work-related expenses
- Other necessary costs related to business travel
What Isn’t Considered a Travel Expense?
In addition to these deductible travel expenses, a number of common travel expenses aren’t deductible.
You can’t deduct any travel expenses that aren’t business-related, which includes personal expenses completed while traveling for business. You also can’t deduct travel expenses that are superfluous or excessive, such as luxury purchases. If your family travels with you on a work trip, their expenses don’t count as your travel expenses.
When you have business-related expenses in your home city, they may or may be deductible. However, they aren’t considered travel expenses.
Knowing what counts as a travel expense will help you understand what you can and can’t deduct when doing your taxes. Pair that knowledge with common small business tax credits, and common small business tax mistakes, and you’ll be able to maximize your refund and avoid being audited.