I own a business, am I allowed to take tax deductions for business travel?
The overall answer is yes. Whether you’re a single-owner LLC or own an S-Corp business with multiple employees, you can take tax deductions for business travel. However, as is always the case in the world of tax law, things get…intricate.
There are rules to consider, and choices to make: will you take the standard pier-diem deduction or the actual costs for travel expenses? If you are a sole proprietor, when it comes to lodging-related tax deduction for business travel, you MUST use the actual cost…but more on that later.
With yearend around the corner, now is the time to sit down with a qualified CPA to analyze your work-related travel expenditures for 2023 so you can figure out the best way to optimize tax deductions for business travel. You’ll also be in a better position to make smart decisions going into 2024.
Now, let’s dive into the next series of “Ask Bob,” where Robert P. Russo, CPA answers your most pertinent tax-related questions.
So, which tax deductions for business travel are actually allowable?
Great question, and the IRS is very clear on the fact that you may only deduct expenses that are “ordinary and necessary expenses of traveling away from your home.” The IRS also cautions that you cannot take tax deductions for business travel that are “lavish or extravagant, or that are for personal purposes.” I’ll go into more detail shortly, but first I want you to step back and ask an even more basic question. Think about it…
Got it! How do I know if the IRS even considers what I am doing as business travel?
Again, this comes straight from the IRS: “Your tax home is the entire city or general area where your place of business or work is located, regardless of where you maintain your family home.” That’s pretty straightforward, when you leave your “tax home,” you are eligible to take tax deductions for business travel.
But what if your tax home is hours away from your real home? The IRS actually provides an excellent example for us to use here. If you and the fam live in Chicago, yet your office is in Milwaukee, and you essentially work there all week – staying in hotels, eating out, etc. – you CANNOT take tax deductions for business travel.
There are also special considerations for “temporary work assignments away from home.” This might be because a client requests you to work with them in person for 3 weeks straight, and their offices are across the country in let’s say, Portland, Oregon. If 3 weeks turn into 3 months, and you’re thinking of moving to Portland, things get complicated and you must speak with a qualified CPA. Our team is well-versed in all matters related to taking tax deductions for business travel, so contact us now.
Now, if you leave the Milwaukee area and take a trip to Detroit for business-related purposes, now we can get back to the nitty gritty of what tax deductions for business travel you can take.
Great, my first question is about the actual travel expenses: getting from point A to point B.
If you drive, you first need to decide if you’ll take the standard mileage deduction or the actual costs to driving a vehicle for business purposes. This article explains this in more detail. As for tax deductions for business travel associated with plane, train, or even boat tickets that get you to the place you’ll be conducting business…those are 100% deductible.
What if I want to golf everyday after I work with my client? Can I still take 100% of the tax deductions for business travel, or do I need to pro-rate what I take?
Another great question. The IRS states that as long as the trip’s purpose is “primarily” for business, you’re in the clear. That is, as long as the travel occurs within the U.S. Naturally, the IRS is suspect of tax deductions for business travel when it’s to meet with a client in the French Riviera! Definitely speak to a CPA if you are planning on business travel outside the U.S., things get complicated fast…trust me.
Also, if you bring your spouse or family on your business trip, that’s fine. But don’t even think of trying to take tax deductions for business travel on their behalf! That means trying to write off their plane tickets, extra hotel rooms for the kids, meals. That’s all personal and not part of tax deductions for business travel. Here’s another must-know tip…if you take a 2-week business trip, and spend the weekends doing non-business activities, you can’t deduct meals and lodging fees for those days and nights.
So back to your desire to golf after working all day. That’s completely fine. However, impeccable record-keeping is essential for taking tax deductions for business travel and proving that each day you are “primarily” involved in doing business! That means you must keep a diary or log of what you did each day to further your business goals. Note meetings, with whom, and where. Receipts are NOT enough alone, the record is essential as well. Of course, keep all receipts. We like to say: When in doubt, don’t throw it out…ask your CPA!
You say I have to keep a log of my activities along with all receipts, but I heard I can just take the per-diem rate from the IRS…so why bother with receipts, right?
Wrong. First of all, when it comes to tax deductions for business travel, it may not be in your best interest to take the per-diem rate for lodging, meals, and incidental expenses. You may be better off deducting the actual amount. And the only way to know that would be to track your expenses. To track actual expenses you must keep a log of the following per each expense: total amount, time, place, and business purpose.
To track per-diem tax deductions for business travel, you don’t have to note amount, time, or place but you must log the business purposes! So, yes, using per-diem rates for tax deductions for business travel does simplify things a bit, but it still requires careful record keeping.
Can I take per-diem tax deductions for business travel? I heard that it depends on what type of entity I have.
You’re correct! It’s important to note that allowable per diem tax deductions for business travel varies depending on the entity you hold. If you are self-employed and file a Schedule C…or if you are own 10% or more in a corporation (S or C corp, doesn’t matter)…you can only take the federal per-diem rate for meals and incidental expenses – not lodging. You must take the actual cost of the lodging as a deduction if you are a sole proprietor, sole owner LLC, or own 10% or more in an S or C corp.
However, if you have employees, they can take the full per-diem rates for lodging, meals, and incidentals – which are tax deductions for business travel that your company can report.
Can you tell me about how to take per diem tax deductions for business travel? What is the highest amount I can take?
The IRS likes to keep us on our toes! New per diem rates are now in effect as of October 1st, 2019 through September 30th, 2020. We’ve listed out these rates to help you calculate the per-diem tax deductions for business travel, and broken them down into “high-low rates.” What this means is that if you travel to a more expensive area – like Sedona, Arizona or New York City – you can take larger per diem tax deductions for business travel. Sometimes the high-cost is only in effect during certain parts of the year (the IRS notes the dates).
Lower rates are in effect for every other locality in the Continental United States (known as CONUS) NOT listed as a high per diem area. See the full list of high-cost localities, here.
- Per Diem for High-Cost Localities: $297
- Per Diem for Any Other Locality in CONUS: $200
- Per Diem for Meals/Incidentals in High Cost Localities: $71
- Per Diem for Meals/Incidentals in CONUS: $60
- Per Diem for Incidentals in Both High-Low Localities: $5
Incidentals refer to tips and fees for hotel staff, valet, and other professionals. A quick note if you are in the transportation industry, such as owning a trucking or hauling company: there are more ins and outs you should understand beyond what we’ve explained here. Please contact us or another CPA for more details. Essentially, if you own a business and travel for work, don’t wait until after the trip to talk to your CPA. Careful planning and record-keeping can potentially save you hundreds – if not thousands – in tax deductions for business travel!