Maximizing your business travel tax deductions
5 min read
April 12, 2021 • Block Advisors
Each year as tax day approaches, the hunt to find additional tax deductions to lower your taxable rate as a small business owner is on. Believe it or not, business travel deductions offer a way to reduce your net earnings, but they come with a lot of rules. Read on and you’ll find tax rules on deducting business travel expenses.
Defining business travel expenses
Business travel expenses are travel costs associated with running a business, or costs incurred when you are away from your principle place of business (called your tax home). Your home office, downtown office space, or where you live if you have multiple stores could be considered a tax home. There are special tax rules for having more than one place of business, no regular place or business, or a temporary assignment.
Many small business travel expenses are tax-deductible. They don’t include personal expenses or ones used to determine your business’ cost of goods sold. Trips for pleasure can never be deducted.
Pro tip: If a family member travels with you, you can’t claim any deduction for their expenses. For the travel expenses of the family member to be deductible, they should be an employee of the business.
What are the tax rules for deducting small business travel expenses?
The general rule for deducting business travel expenses is that it must be ordinary and necessary.
- An ordinary business travel expense means the expense is typical in your line of business or industry.
- A necessary expense is one that is appropriate and helpful for your business.
Whether an expense is ordinary and necessary depends on facts and circumstances, which vary based on your job role and industry. So, if you are looking to deduct a shopping excursion for new attire to wear on an important business trip… You probably want to think twice as neither the shopping trip nor the purchase of everyday clothing count for deductions.
The ordinary and necessary principle can help make a better decision on whether your small business travel expenses are deductible.
Items that qualify as business travel deductions include:
- Air travel and pre-check
- Rental car
- Shipping of baggage or trade show material
- Dry cleaning and laundry while on a business trip
- Fares for taxis, commuter bus, or transportation between:
- The airport or train station and your hotel
- The hotel and the work location
- Tips paid during your business excursion
- Business calls – fax, cell, or landline
- Using your personal car while on a business trip2
- Technology – computer rental or wireless fees
Learn about temporary rules that allow you to deduct 100% of your food and beverage expenses for 2021 to 2022.
What about deducting international business travel?
If part or your full trip is outside the country, the IRS rules differ and some of your deductions for the cost of getting to and from the destination may be limited if you spend time on personal activities during the trip. For a longer trip, your international travel is considered business-related and deductible if you were outside the U.S. for more than a week and 25% or less of the time abroad was spent on personal activities. In other words for a trip longer than a week to be expensed, you must spend 75% of the trip time on business related matters.
Best practices for taking small business travel deductions
There are best practices for taking small business travel deductions. While traveling away from your place of business, keep records of all expenses incurred and any advances received, and keep all receipts. Records should be kept in case a deduction is questioned by the IRS and to substantiate the numbers on your tax return.
It can get confusing whether certain travel expenses are deductible or not. As a taxpayer, your role is to properly report and track potentially deductible expenses.
If you need help determining what travel deductions you can make, look to a Block Advisors small business certified tax pro. Not only can we help manage your taxes year-round, we have the bookkeeping tools and services to keep you on track, ensure your books are accurate and you can focus on what you love (which is probably not taxes).
Where to show business travel expenses on your tax return
Where you show qualified business travel expenses depends on your business entity.
- Corporations report the small business expenses in the “Deductions” section of IRS Form 1120.
- Multiple-member LLCs and partnerships should report expenses in the “Deductions” section on Form 1065.
- Single-member LLCs and sole proprietors should report the business travel expenses in the “Expenses” section of Schedule C.
Help with deducting business travel expenses
If you’re still not sure about what you can and can’t deduct, don’t sweat it. Get help.
When you use a Block Advisors small business certified tax pro, you can rest assured we’ll help you claim all of the self-employed tax deductions you are entitled to – from travel to everyday business expenses.
Let our tax pros help with services like tax preparation, payroll, and bookkeeping. Our team is your team.
1 Instead of keeping records of your meal expenses and deducting the actual cost, you can generally use a standard meal allowance, which varies depending on where you travel. The deduction for business meals is generally limited to 50% of the non-reimbursed cost. Certain business meals will be 100% deductible in 2021 and 2022.
2 You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.