Traveling for Work – Deductible Business Expenses

Your Guide to State, Local, Federal, Estate + International Taxation

Business travel can be an expensive and time-consuming activity for both the employer and employee. It also can create tax headaches for all involved unless the rules are followed properly. If it’s done right, business travel will be fully deductible by the company (only 50% of travel meals are deductible), tax-free to the employee, and free of FICA and payroll tax withholding. In general, a business may deduct all the ordinary and necessary business expenses paid or incurred during the tax year in carrying on any trade or business, including travel expenses that aren’t lavish or extravagant while away from home in the pursuit of a trade or business.

The round-trip cost of traveling on business is deductible whether or not the taxpayer is away from home overnight. What makes business travel unique from the tax viewpoint is that when a taxpayer is in business travel status, the entire cost of lodging and incidental expenses, and 50% of meal expenses, is deductible by a business that pays the bill and doesn’t result in any taxable income to employees who are reimbursed under an accountable plan.

A business trip has the status of business travel only if:

  1.  It involves overnight travel
  2. The taxpayer travels away from his tax home and
  3. The trip is undertaken solely, or primarily, for ordinary and necessary business reasons

To deduct the cost of lodging and meals, the taxpayer must be away from home overnight. Deductions for meals and lodging on business trips are allowed because expenses for these items are duplicative of costs normally incurred at the taxpayer’s regular home and require the taxpayer to spend more money while traveling. Consequently, the taxpayer can’t claim deductions for meals and lodging unless he has a home for tax purposes, and travels away from it overnight.

By Shant Andonian