Whether you’re running a business or working in a role that requires you to travel, you need to understand how this applies to your tax return. Properly accounting for your travel and meal expenses can help lower your tax bill and reduce the risk of problems if the IRS audits your return. However, making a mistake in deducting work expenses is one of the most common ways people get into trouble with the IRS. Knowing the rules allows you to maximize your deductions while staying compliant.
Expensing Travel for Work
For travel expenses to be deductible, they must be ordinary and necessary for your business. You are considered to be traveling for work when your duties require you to leave your tax home for longer than a typical workday, and you need to sleep or rest before continuing your work duties. Your tax home is the city or general area where your primary place of business is located, not where your residence is.
You cannot deduct the cost of travel if you are simply working in a new area that effectively becomes your tax home. For example, if you live in Marysville but work primarily in Seattle, expenses incurred in Seattle are not deductible because that is your tax home. Only temporary work assignments away from your tax home qualify for travel expense deductions. A work assignment expected to last one year or more is considered indefinite and disqualifies travel expenses from being deductible.
Common deductible travel expenses include gas, airfare, train tickets, rental cars, taxis, and rideshares between your home and business destination. Expenses for transportation between your hotel and work locations, shipping baggage or work materials, and parking fees can also be deducted. Lodging costs, dry cleaning while traveling, and business calls are included as long as they relate to your business trip (and are not just a luxury added to the trip). If you drive your personal car for business purposes at your work destination, you can either deduct actual costs or use the IRS standard mileage rate.
If your employer reimburses these costs, you must reduce your deduction accordingly. Unreimbursed travel expenses are deductible if you are self-employed (reported on Schedule C) or a farmer (reported on Schedule F). Special rules apply to members of the National Guard and reservists traveling more than 100 miles from home, who may claim an income adjustment using Form 2106.
Expensing Work Meals
Like travel, meal expenses while traveling for work can be deducted if they are ordinary, necessary, and directly related to your business activities. You have two options: either deduct the actual cost of meals or use the standard meal allowance provided by the IRS, which varies by location.
The deduction for meals is generally limited to 50% of the unreimbursed cost. Keep in mind that entertainment expenses are not deductible, so meals must be separate from any entertainment activities. Good record keeping is important: you should retain receipts and note the business purpose of the meal to support your deduction if questioned.
If you are using a per diem allowance, you do not need to keep records of actual meal costs, but you should still maintain a log showing the time, place, and business purpose of your travel. Choosing the per diem method can simplify your recordkeeping and still provide a strong deduction, especially if you travel frequently.
Protecting Yourself From Trouble with the IRS
Properly deducting travel and meal expenses requires attention to detail and careful record keeping. Failure to comply with IRS rules could lead to an audit or disallowed deductions. We help clients ensure their tax filings accurately reflect allowable deductions. For peace of mind that your travel and meal expenses are properly handled, contact our Seattle office for the experienced legal guidance you need.
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