Business Travel Basics
A business trip is an opportunity to do productive business while earning substantial deductions. But it's important to know the rules and limitations of deductions for business trips; i.e. what constitutes a business trip, what is deductible, and what you need to support your claims. You can combine business trips with pleasure trips, but make sure your trip still qualifies.
What Qualifies?
The rules for determining what qualifies as a business trip differ whether the travel was domestic or international. The most important factor is the time spent conducting business. For domestic travel, the rule of thumb is that 50% or more of the days must be business days. For international travel, the rules are the same if the trip is less than a week long. If the trip does not qualify as a business trip, then transportation costs cannot be deducted at all, except for any specific costs that relate directly to a business meeting. If the trip is over a week, then 75% of the days must be business days. If it does not qualify under this standard, costs are split on a proportional basis by the number of business days and personal days.
If you're not sure how to determine what counts as a business day, here are some guidelines that will help you classify your travel correctly. Business days include:
• A day when you conduct significant business activity
• A day you spend traveling to a business destination (on a reasonably direct route)
• A weekend or holiday sandwiched by business days
• Weekend stay-over days necessary to save transportation costs
What Travel Expenses Are Deductible?
If a trip qualifies as business travel, then transportation costs are completely deductible. The transportation expenses are whatever it costs to get to and from the destination, regardless of overnight stay. Other expenses are also deductible. If you have to stay overnight, then your meals and lodging are deductible. On the other hand, if you travel overnight, then any meals you need are deductible, but only at 50% of their cost.
If you travel with your family, make sure to separate deductible expenses from non-deductible ones. There is no deduction for travel expenses for spouses or dependents, unless they are an employee and the travel is for business purposes. When family members aren't deductible, your deductible total is based on what you would have spent if you were alone. For example, automobile travel will still be deductible in full, because adding a second person does not add cost. For lodging, however, if a second person adds expense to the room, you can only deduct the cost of one person.
Support Your Travel Expenses
Keep receipts for all lodging expenses. In fact, you'll probably benefit from keeping receipts for all expenses, even those for less than $75, because the receipts will remove any doubt. You should also keep a tax diary that explains all your expenditures. Include the amount and schedule of your expenses, dates of departure and return from the trip, the number of days spent doing business, the details of the places you travel, and an explanation of the business reason for the travel.
