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Rules for Business Travel Deductions
General Business News
November 1999
Rules for Business Travel Deductions
It is important to know the general tax rules for business and pleasure trips if you are planning big write-offs. Different rules apply to foreign and domestic travel. Following are some of the key rules.
Domestic Travel
If the primary purpose of a domestic trip is business, then you can write off all transportation costs, lodging costs and 50% of meals and entertainment. The most important factor in determining that the primary function of the trip is business, is the balance of days spent on business versus pleasure. Another factor is the reason you are taking the trip in the first place. If you would not have gone, except for having to do business then the travel is primarily for business.
Foreign Travel
One of the keys for the amount of deduction on a foreign business trip is whether or not personal time is involved and if you have control over travel plans. If you are self-employed, a managing executive, related to your employer or own more than 10% of the company, then you are considered as "having control" over travel plans. You must meet the following exceptions in order to deduct full airfare:
· Complete the trip in seven days or less
· If you spend less than 25% of your time on non-business activities then you can write off full airfare in spite of the length of the trip
· Business must be the major emphasis of the trip
If you do not meet these standards then you can deduct the appropriate portion of the trip. For example, if you spend 40% of the trip on business then you can deduct 40% of the airfare.
Spouse Expenses
Generally you cannot deduct a spouse's travel costs if you take a spouse along on a business trip. However, taking your spouse along may not cost you much more than going alone.
You can deduct the full amount of the traveling expenses to and from a business location if you drive, even if you take your spouse along for the ride. You may be able to deduct the full amount of a hotel stay even if your spouse stays with you. You can deduct what it would have cost had you gone alone and it may well be the same as the cost for two of you.
If your spouse is present at an entertainment function that otherwise qualifies for a deduction then you may be able to deduct the expense for your spouse.
Accountable plan or non-accountable plan
Make sure you ask your employer if your company is using an accountable plan or a non-accountable plan. Reimbursed payments under a non-accountable plan are treated as income and the employee can claim deductions for business expenses. The accountable plan advances employees or reimburses employees for travel expenses. Payments to employees under the accountable plan are not included in the employees' gross income and are not reported on a W-2 form.
As always, keeping good records is essential to making the most out of your business travel deductions.
Domestic Travel
If the primary purpose of a domestic trip is business, then you can write off all transportation costs, lodging costs and 50% of meals and entertainment. The most important factor in determining that the primary function of the trip is business, is the balance of days spent on business versus pleasure. Another factor is the reason you are taking the trip in the first place. If you would not have gone, except for having to do business then the travel is primarily for business.
Foreign Travel
One of the keys for the amount of deduction on a foreign business trip is whether or not personal time is involved and if you have control over travel plans. If you are self-employed, a managing executive, related to your employer or own more than 10% of the company, then you are considered as "having control" over travel plans. You must meet the following exceptions in order to deduct full airfare:
· Complete the trip in seven days or less
· If you spend less than 25% of your time on non-business activities then you can write off full airfare in spite of the length of the trip
· Business must be the major emphasis of the trip
If you do not meet these standards then you can deduct the appropriate portion of the trip. For example, if you spend 40% of the trip on business then you can deduct 40% of the airfare.
Spouse Expenses
Generally you cannot deduct a spouse's travel costs if you take a spouse along on a business trip. However, taking your spouse along may not cost you much more than going alone.
You can deduct the full amount of the traveling expenses to and from a business location if you drive, even if you take your spouse along for the ride. You may be able to deduct the full amount of a hotel stay even if your spouse stays with you. You can deduct what it would have cost had you gone alone and it may well be the same as the cost for two of you.
If your spouse is present at an entertainment function that otherwise qualifies for a deduction then you may be able to deduct the expense for your spouse.
Accountable plan or non-accountable plan
Make sure you ask your employer if your company is using an accountable plan or a non-accountable plan. Reimbursed payments under a non-accountable plan are treated as income and the employee can claim deductions for business expenses. The accountable plan advances employees or reimburses employees for travel expenses. Payments to employees under the accountable plan are not included in the employees' gross income and are not reported on a W-2 form.
As always, keeping good records is essential to making the most out of your business travel deductions.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.
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