Taking a trip this year, can you deduct it and how much of it can you write-off? ...or did you take a trip last year and you want to know if you can write it off on your business tax return this year?
As a business owner, you may find yourself traveling for a variety of reasons, including client meetings, conferences, or networking events. Optimize your tax savings and keep your write-offs above board by understanding what and how to deduct expenses related to these trips.
It is also just as important to understand what is not deductible...and what you need to support your write-offs. Credit card statements may not be enough!
If you are an employee of a company and do not own your own business, you may be able to be reimbursed by your employer for travel expenses. However, without a business of your own, you can not write-off costs related to travel as an employee.
100% deductible trips
You may be able to deduct 100% of your travel expenses, even if the trip has personal components. For this to be the case, the primary purpose of the trip is for business, and any personal activities are merely incidental. Examples of situations where you can deduct 100% of travel expenses include:
Business trips: If your trip is primarily for business purposes, such as attending a client meeting or visiting a project site, and any personal activities are minimal and incidental, you can deduct your transportation, lodging and meal expenses.
Conferences and Workshops: When attending conferences, workshops, or training sessions directly related to your business, you can generally deduct 100% of the associated travel expenses, including transportation, lodging, meals, and conference fees.
- Employee Retreats: Business retreats for your employees are fully deductible including team-building events if they are used "primarily for the benefit of the employees". Note that if the only employee is you, a team-building retreat would be a stretch and not fly.
Partially deductible trips
When a trip has a mixed purpose, meaning part of the trip is for business-related activities and the other part is for personal reasons, you can still deduct certain expenses associated with the business portion of the trip.
Transportation: You can deduct the cost of transportation directly related to your business activities, such as airfare or train tickets to and from your destination. For mixed purpose trips, you can allocate a percentage. For instance, if 50% of the trip is considered business-related, 50% of the total transportation costs can be deducted.
Lodging: The expenses for lodging during the business portion of your trip are deductible. This includes hotel or Airbnb costs for the nights you stayed for business purposes. For example if you went to a conference, the nights of the conference are deductible but then then extra 4 days you added on to go to Disney with the family, those nights are not.
Meals: Track 100% of your business meals and let your tax preparer handle the deduction part. Log all of the meals on travel or that have a business purpose. Why delegate to your tax preparer? This part of the tax code has been changing in recent years and can even be different between federal and state rules. Keep detailed records of your meal expenses, including receipts and documentation of the business purpose of each meal for maximum write-offs.
Other Business-Related Expenses: Any other expenses directly related to your business activities during the trip, such as conference registration fees or transportation between business meetings, are deductible at 100% for the business portion of the trip.
Don't listen to TikTok or clickbait so-called tax experts on social media who claim you don't need receipts anymore. Try to justify that to your future IRS auditor.
The business purpose
Documentation is your friend and key to validating your business purpose. It is crucial to maintain detailed records and documentation to support your claims. Credit card statements are NOT enough when it comes time to support your business reason for the expense. What do you need?
- Keep a travel log or itinerary outlining the business-related activities conducted during the trip such as a daily agenda
- Retain receipts and invoices for all expenses incurred, clearly indicating the business purpose of each expense. We always recommend writing the business purpose and who it was for on the physical receipt and scanning/saving it in your receipt folder or bookkeeping software.
- Document the dates and duration of the trip and the locations visited for business purposes.
- Driving to an event or location? Keep a mileage and gas log.
How can you simplify this? An internal note or memo would be sufficient to document the business purpose. Will you do this? How can you make it functional for you?
Do you use Google Calendar to book all your trips? Add the detail there. Add a purpose and agenda to the calendar entry.
Do you keep a journal? Add it there. Maybe a note on a Google Doc or Google Sheet works easiest for you, file it away in your business documents.
For receipts, they need to be easy to find and retrieve. How you do this depends on what system you implement and will use! Add a label or tag to them in your email if they are digital. Upload them to a Google Drive folder or Dropbox or directly to your bookkeeping software. If you are using QuickBooks Online, there is a super easy way to scan paper receipts from the mobile app. QuickBooks Online also has a simple way you can forward them to a specific email address that dumps them into your bookkeeping software. Again, find a way that works for you and make it part of your routine.
Don't delay, because even 2-3 months later you won't remember the details. Document it at the time of the event and file it away. You only need it, if you are audited and need to show proof... and we all know that can be 2+ years later. So document it while it's fresh in your mind.
S Corporations and C Corporations document their quarterly and annual Shareholder or Board of Director meetings with detailed Meeting Minutes that document discussions, activities, decisions made, policy changes, and future plans. If meetings are held off-site, the IRS may see shareholder travel as personal in nature.
To write-off the travel related to a shareholder meeting, it is critical to document why travel was necessary for the meeting to be held offsite in the first place, (i.e. needing peace and quiet without client calls, meetings, and distractions to focus on long-term planning and strategy.)
The 4-Day weekend trip
If you book business meetings with vendors and clients or other business activities (like a trade show) on the Friday before and the Monday after a weekend, the trip is deductible and the weekend downtime does not count against you, even if you spend that Saturday and Sunday on personal activities.
What if I work in business on a personal trip?
If you incur business expenses due to work and business activity on a personal trip, these could be costs that you can deduct as they are ordinary and necessary for your business.
Since the trip itself is not for a business purpose, you will not be able to write off costs like airfare. But if you have a day trip with a business purpose, costs related to those business-specific activities can be deducted.
Keep it within reason
Is your travel extravagant or excessive? If so, you will likely have a more difficult time justifying it being "ordinary" and "necessary" and thus disqualify it as being a valid tax write-off. Don't go too big or too far. Luxury and international travel will likely make your trip not deductible.
If your travel-related costs are the result of a business purpose, are ordinary and necessary to your business, and are not excessive, you have the opportunity to write off expenses.
Be intentional when you plan your travel and keep solid records and documentation that provide validation of any business-related event, activity, meal or trip. Documentation is the necessary support that validates your tax write-off.
You may write off 100% of the costs, a percentage of trip expenses or none of the costs, depending on the intention and purpose of the trip. Keep costs within reason, don't be excessive in your spending.