All you need to know about deducting business travel expenses
Traveling for business can be expensive. From hotel bills, flight or train tickets, taxi fares, public transportation, to food and drink, and much more. The good news is that, as a business traveler, you are eligible for tax deductions on many of your travel expenses.
To benefit from business travel deductions, it is first important to understand what exactly can be claimed as an expense and under what circumstances.
What are business travel expenses?
According to the IRS, you are traveling for business if you are away from your tax home (more on this shortly) for an amount of time that is “substantially longer than an ordinary day’s work” which also requires you to rest or sleep while away. That being said, this trip must be temporary, which the IRS defines as lasting no longer than one year.
Therefore, travel expenses related to such business activities are all of the ordinary and necessary expenses you incur when the purpose of the trip is of work nature.
What is your tax home?
Your tax home refers to the general area surrounding your main place of business such as the city and the surrounding suburbs. This is not to be confused with your personal home. That being said, if you work from a home office, that would be considered your tax home.
It is important to identify and understand where your tax home is as this helps determine what trips can be tax-deductible.
What about my daily commute?
Before looking into what expenses are tax-deductible when traveling for business, let’s have a quick look at expenses incurred within your city or tax home.
Getting to and from work on a daily basis whether, by car, train, bus or any other mode of transportation is not a cost that can be claimed back no matter how long the distance between the two points is.
Any parking fees that you pay to park in the street or in a car park near your regular place of work are also non-deductible. You can, however, claim any parking fees that you incur should you need to visit a client or for outside business meetings for example.
In cases where you are moving around your town for business purposes such as work lunches or meetings, you may be able to claim back the travel costs such as taxis or standard mileage rates if using your own vehicle as well as the cost of meals. You won’t be able to rent a hotel room and claim that back, however.
Tax-deductible, business-related expenses
So you’re traveling away from your tax home for business purposes on a national or international trip. What travel expenses can you expect to write off in your next tax return?
This covers many forms of expenses. You can claim back the expense of getting from your home to your business destination whether using your personal vehicle, car rental, taking a flight, a train, or bus.
Once at your destination, you can also claim expenses like taxi fares and transportation related to traveling from the airport or station to your hotel or between your accommodation and your temporary place of business.
If you’re using your own vehicle, there are two methods to deduct business travel expenses. The first is by using the actual expenses method. This is where you add up every single cost that is related to your business trip using your vehicle and multiply it by the percentage of time you used it for business during the year. This covers things like fuel, insurance, and even general maintenance costs and car expenses like new tires, brake fluid, etc.
A more straightforward method is the standard mileage rate method where you simply take note of the miles you drove for business during the year and you claim that back based on the standard mileage rate allocated by the IRS for that tax year. In 2021 the standard mileage rate is $0.56.
Can you reclaim VAT on business flights?
In general, when you make a purchase that is solely for your business, you can reclaim the VAT. This includes purchases made in association with business travel.
However, if you’re wondering whether you pay VAT on airline tickets in the first place, then the answer is no.
Air travel, including business flights, is not subject to VAT. Flights are zero-rated (which means they are exempt from VAT), and therefore there is no VAT for you to claim back. However, you can of course expense business flights.
Staying in a hotel or paid accommodation is another tax-deductible cost as well as some other related costs like laundry and dry cleaning. Other costs, however, might not be eligible such as the use of the hotel’s gym, movie rental, or food items from the minibar. Obtaining an itemized bill at the end of your stay is therefore important for claiming the eligible costs back.
Food and drink
Generally speaking, you can claim up to 50% of business meal costs and meal expenses as long as they are not “lavish or extravagant” which, according to the IRS means that it is “reasonable based on the facts and circumstances.”
You can claim the cost of sending baggage as well as “sample or display material” to your business destination.
These include business-related calls you make while on your business trip. It also includes any other form of communications costs by fax or other communication devices.
Other expenses include…
- Tips relating to eligible expenses
- Computer rental fees
- Operating and maintaining a house trailer
- Public stenographer fees
Am I eligible for overtime if I’m traveling outside of work hours?
Let’s imagine that your workday normally starts at 8:00 am and ends at 4:00 pm. If you’re catching a flight for a business trip that leaves at 3:00 pm and you will be traveling until 7:00 pm, you will only be paid until 4:00 pm as usual.
On the other hand, if you are expected to work during the trip you may be compensated. If you are a personal assistant traveling with your employer and might be called upon to work at some point during the trip, you can still be compensated since you are being “engaged to wait” in such a situation.
Tax deductions for itinerant workers and the self-employed
People who are self-employed or freelancers are also eligible for tax deductions on the usual travel expenses including airfares, transport, lodging and non-entertainment expenses, business meals, laundry, dry cleaning and so on.
You are considered an itinerant or transient worker if you don’t have a regular place of work nor a regular living space. Itinerant works are not eligible for travel expense deductions since they are never technically traveling away from their home.
Claiming your travel expenses back
The most important thing to keep in mind when traveling is to save copies of all of your expenses, particularly VAT receipts. You can obtain more information on what documentation you need and how to apply for tax reimbursement for your business travel expenses through this IRS publication where you can also find and download the necessary documents needed for your situation.