This is a big topic and very common. I will try to sum up the main areas. As most know, there are tax breaks for travelers who mix in vacation with their business travel. Here are the three main deductions for business travel:
- 100% of the round-trip transportation costs are deductible as long as it was primarily for business.
- 100% of the costs of lodging for those days you are “doing business.” This means if you are gone for five days and three days are business while two are vacation, then you can deduct the three days of lodging that were business days.
- 50% of meals for the days you are “doing business.” (Eating out has never been cheaper, but make sure to keep it REASONABLE. Don’t get crazy!)
If you are an employee traveling and your company reimburses your business travel expenses under an accountable plan, make sure you file your expense report timely, document the business purpose of the travel, plus keep your receipts or copies, if submitted. This reimbursement is tax-free to the employee traveling for the business purpose. Same rules apply though if you are traveling five days and three are business while two are vacation. The three days are tax-free. The other two days can be reported in a couple of ways:
- If you submit the full five days to be reimbursed, then the three business days will be deductible and tax free to the employee; however, the two business days will also be deductible by the company as well, but that will be considered compensation and reported on your W-2. This case is a little less common. Make sure to check with your company policy before submitting the full five days’ worth of expenses.
- The other way is to submit the three business days’ expenses along with lodging and round trip transportation costs to be reimbursed tax-free to you as the employee and deductible by the business.
Business travel isn’t always fun, so try to make the best out of it by utilizing some of the tax breaks. Add on a couple days of travel for vacation (airfare tickets aren’t cheap) and deduct or get reimbursed for your business travels while enjoying a little vacation on the side. Bring your spouse along, or friend, although he or she is not deductible unless as mentioned above with the compensation rule. When traveling with someone else that is not there for business purposes, watch for any additional charges such as “extra person” charges at the hotels. These are nondeductible expenses or business related expenses. Foreign travel does differ a little from domestic travel. If you plan on traveling for business and mixing in vacation, or if you have any questions regarding what is deductible, tax-free, or compensation, please ask us.
Here are a couple of IRS links to skim through for additional information regarding travel expenses.
By Chris Morrison