Whether someone travels once a year or every month for business, figuring out expense tax write-offs might seem confusing. Before you start listing travel deductions, take the time to understand what the Internal Revenue Service (IRS) means by home, business, and ordinary and necessary expenses. Here is some information to help all business travelers claim these valuable deductions.
Ordinary and Necessary Deductions
Travel expenses are the ordinary and necessary costs of traveling away from home for legitimate business purposes. You cannot deduct lavish, extravagant expenses. If the IRS chooses to investigate and discovers an unnecessary claim, you might suffer substantial penalties.
You can deduct travel expenses typically paid or incurred due to a temporary work assignment away from home. However, you cannot deduct travel expenses connected to an indefinite work assignment that surpasses one year.
Home Sweet Tax Home
You can claim necessary business expenses when traveling away from your tax home for longer than an ordinary workday. Your tax home is the city where your place of work is located, regardless of where you maintain your family residence.
When determining your place of work, look at the length of time spent at each location, the degree of business activity in the area, and the relative significance of the financial return. The most significant consideration is the length of time spent at each location.
Planes, Trains, and Automobiles
Are you traveling by plane, train, bus, or car? The actual cost of the ticket and any baggage fees are deductible. For example, if paying top dollar for a last-minute flight, the high-price ticket is considered a business expense. However, the deduction is zero if the ticket is free due to frequent flyer miles.
When renting a car, deduct only the business-use portion for the expenses. If driving your vehicle to a business destination other than your office, deduct that expense or use the IRS standard mileage rate. Additionally, you can add business-related tolls and parking fees to your standard deduction.
Fees for Getting Around
Fares for taxis, shuttles, or other types of transportation are considered deductible travel expenses. For example, you can deduct the costs to go to the airport, train station, hotel, or work location of clients.
Lodging, Meals, and Tips
The IRS allows you to deduct business-related lodging and meal expenses. Generally, the deduction for meals is 50% of the unreimbursed costs. However, for 2021 and 2022 tax returns, it is 100% of the unreimbursed costs. Alternatively, if you do not incur any meal expenses nor claim the standard allowance, you can deduct $5 per day for incidental charges, such as tips.
Other Deductible Expenses
Deductible travel expenses while away from home include, but are not limited to, the costs of:
Dry cleaning and laundry.
Business calls while on your trip, including communications by fax machine or other devices.
Other similar ordinary and necessary expenses related to your business travel.
National Guard or Military Reserves
National Guard or military reserve service members can claim a deduction for unreimbursed travel expenses paid in connection with the performance of their duty. Travel must be overnight and more than 100 miles from your home. This deduction is limited to the standard mileage rate and the regular federal per diem rate for lodging, meals, and incidental expenses. It also includes any parking fees and tolls.
Save Time with Recordkeeping
Well-organized records are essential and make it easier to prepare a tax return. Keep documents such as receipts, canceled checks, and other paperwork that support a deduction, as the IRS may request it upon audit.
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