What Are Travel Expenses?
Travel expenses are defined as the...
- Ordinary and necessary expenses...
- related to your business, profession, or job...
- while traveling away from home.
Who May Deduct Travel Expenses?
Travel expenses may be deducted by:
- Self-Employed Persons
- Unemployed Persons
- Transportation industry workers (get special treatment)
- Deduct business-related travel expenses while away from home
as a business expense.
- Claim the deduction on line 24 of Schedule C.
- The 2% AGI floor does not apply to self-employed persons because, unlike employees of a company who report unreimbursed travel expenses on Schedule A, where the 2% AGI is applied, self-employed persons claim the deduction on Schedule C.
- Employees may deduct unreimbursed travel expenses related to their job. However, unike Self-employed persons, employees are subject to the 2% of adjusted gross income (AGI) floor on Schedule A. This means, the amount of the deduction must exceed 2% of AGI for an employee to get a tax benefit.
- If you take local one-day trips to see customers/clients, you're allowed to duduct your transportation expenses but not the cost of personal meals on one-day business trips within the genera area of your tax home.
- Employees report unreimbursed transportaion and travel expenses on Form 2106. You can use short form 2106EZ if you are not reimbursed by your company and you do not claim depreciation on a car used for business.
- Employees enter expenses from Form 2106 or 2106EZ on Schedule A, where they are subject to the 2% of AGI floor.
- Under an "accountable plan" arrangement, an expense allowance for travel costs is not reported as income on Form W-2 if you substantiated the expenses to your employer and returned any unsubstantiated portion of the allownce.
A reimbursemnet or alloawnce arrangement is an accoutable plan if you must:
- Adequately account to your employer for your expenses; and
- Retun any excess reimbursement or allowance to your employer that you do not show was spent for ordinary and necessary business expenses.
If the above terms are met and your expenses are fully reimbursed, you do not report the expenses or the reimbursement on your return. However, if the reimbursement is less than your payment of expenses, you claim a deduction for unreimbursed expenses on Form 2106 and Schedule A (where the deduction is subject to the 2% of AGI floor).
- An unemployed person may deduct travel costs to find a new job, including meals and lodging.
- The deduction is taken on Schedule A under the
miscellaneous deductions section if he/she itemizes deductions.
- Only 50% of meal costs are deductible.
- Lodging costs are 100% deductible.
- The deduction must exceed 2% of adjusted gross income to get any tax benefit.
Caution! First-time job seekers may not deduct expenses to find their first job.
Transportation Industry Workers
- Employees or self-employed persons in the transportation industry may elect
to claim a special M&IE (meals and incidental expenses) rate.
- The blended M&IE rates set by the IRS that will apply during
the federal government's 2012 fiscal year from October 1, 2011
to September 30, 2012 (the first nine months) are as follows:
- $59 per day
for any CONUS location (locations within the continental united
- $65 per day for any OCONUS location (outside the
continental united states).
- Check with the IRS for updates.
Items Included in Travel Expenses
- Transportation costs of getting from home to the business location and back home are
Once you arrive at the business location, you may deduct 100% of the cost of:
- Transportation between the airport (or train/bus station) and the hotel.
- Transportation between the hotel and all business locations.
- Lodging costs are 100% deductible. Make sure you have receipts for lodging. There is no IRS standard lodging allowance like there is for meals.
- Tips to service personnel are 100% deductible. For example, taxis, baggage handlers, and maid service.
- Tips to waiters/waitresses for meals are only 50% deductible.
- Dry cleaning and laundry expenses are 100% deductible.
- Business-related telephone and internet charges are 100% deductible.
Meal Allowance (Food and Beverages):
- You can claim actual meal costs, if you maintain records,
or use the IRS standard meal allowance.
- If you use the IRS standard meal allowance, the allowance for
2011 for travel within the continental U.S.
(referred to as CONUS locations) is usually $46 per day, higher
rates apply in certain high-cost areas such as resort areas and metropolitan cities.
- Keep a record of the time, place, and business purpose of
the trips. Failing to keep records could cost you the deduction.
Entertaining Business Associates on Business Trips:
You may deduct:
- Food and beverage costs, including taxes and tips.
- Only 50% of these costs are deductible.
- Tickets to entertainment events.
- Only 50% of the face value of a ticket is deductible even if you actually pay more.
- Transportation costs to and from a restaurant and/or entertainment facility are 100% deductible.
- See the deduction rules for...
- your employees who travel with you, and
- a non-employee spouse, dependent, or other individual who travels with you.
Travel Expenses: Tax Terms You Need to Know-Ordinary and Necessary Expenses