As the country begins to climb out of the Covid-19 pandemic, business travel continues to increase. With that, we thought it would be a good time for a refresher on the deductibility of business travel expenses.
Transportation, Lodging and Meals:
The actual costs of travel, such as airfare, lodging, and ground transportation are deductible for out-of-town business trips. You are also permitted to deduct the cost of meals. Meals are deductible even if they are not connected to a business conversation or other business function when you are out of town on a business trip. The Consolidated Appropriations Act includes a provision that removes the 50% limit on deducting eligible business meals for the 2021 and 2022 tax years. The law allows a 100% deduction for food and beverages provided by a restaurant.
Travel and meal expenses that are “lavish or extravagant,” are not deductible. In addition, personal entertainment costs on a business trip are not tax deductible. However, business-related expenses such as dry cleaning and telephone expense can be deductible.
Combining Business and Personal Travel:
It is common for a business trip to include vacation days as well. As an example, you travel to a location for 3 days of business meetings and stay on for an additional day of vacation. Only the cost of meals, lodging and other travel related costs incurred for the business days are deductible. Costs associated with the vacation day are not deductible.
For domestic travel, the cost of the transportation (airfare, train, etc.), is fully deductible if the trip is primarily business and no allocation is required. Conversely, if the trip is primarily personal, none of the transportation costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each. International travel has different rules when combining business and person travel. That’s a blog for another day.
Deducting the costs of a spouse who accompanies you on a business trip are very restrictive. No deduction is allowed unless the spouse is an employee of your company, and the spouse’s travel is also for a business purpose.
Personal expenses incurred at home as a result of taking the business trip are not tax deductible. As an example, the cost of boarding a pet or a house sitter while you are away is not deductible.
Under The Tax Cuts and Jobs Act, employees can no longer deduct their unreimbursed travel expenses through 2025 on their own tax returns. Only self-employed individuals and businesses can deduct business expenses, including business travel expenses.
Still have questions? Contact your ClarkSilva team member today!