Tax & Business
Alert
– February 2024
593 words
Abstract: For employers
and their employees traveling for business this year, there are a number of considerations to keep in mind. Under the tax
law, in order to claim deductions, certain
requirements for out-of-town business travel within the United States must be
met. The rules apply if the business conducted reasonably requires an overnight
stay.
If
you and your employees will be traveling for business this year, there are many
factors to keep in mind. Under the tax law, certain requirements for
out-of-town business travel within the United States must be met before you can
claim a deduction. The rules apply if the business conducted reasonably
requires an overnight stay.
Note:
Under the Tax Cuts and Jobs Act, employees can’t deduct their
unreimbursed travel expenses through 2025 on their own tax returns. That’s
because unreimbursed employee business expenses are “miscellaneous itemized
deductions” that aren’t deductible through 2025. Self-employed individuals can
continue to deduct business expenses, including away-from-home travel expenses.
Rules that
come into play
The
actual costs of travel (for example, plane fare and cabs to the airport) are generally
deductible for out-of-town business trips. You’re also allowed to deduct the
cost of lodging. And a percentage of your meals is deductible even if the meals
aren’t connected to a business conversation or other business function. For 2024,
the law allows a 50% deduction for business meals.
No
deduction is allowed for meal or lodging expenses that are “lavish or
extravagant,” a term that generally means “unreasonable.” Also, personal
entertainment costs on trips aren’t deductible, but business-related costs such
as those for dry cleaning, phone calls and computer rentals can be written
off.
Mixing business
with pleasure
Some
allocations may be required if the trip is a combined business/pleasure trip;
for example, if you fly to a location for four days of business meetings and
stay on for an additional three days of vacation. Only the costs of meals,
lodging and so on incurred during the business days are deductible — not those
incurred for the personal vacation days.
On
the other hand, with respect to the cost of the travel itself (for example, plane
fare), if the trip is primarily for business purposes, the travel cost can be
deducted in its entirety and no allocation is required. Conversely, if the trip
is primarily personal, none of the travel costs are deductible. An important
factor in determining if the trip is primarily business or personal is the
amount of time spent on each (though this isn’t the sole factor).
Suppose
a trip isn’t for the actual conduct of business, but
is for the purpose of attending a convention or seminar. The IRS may check the
nature of the meetings carefully to make sure they aren’t vacations in disguise,
so retain all material helpful in establishing the business or professional
nature of this travel.
Also,
personal expenses you incur at home related to the trip aren’t deductible. This
might include costs such as boarding a pet while you’re away.
Before you hit the road
Contact
us with any questions you may have about travel deductions. We can help you
stay in the right lane.
Sidebar:
Is your spouse joining you?
The
rules for 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 yours or of your company. If that isn’t the case, then even if
there’s a bona fide business purpose for having your spouse make the trip, you probably
won’t be able to fully deduct his or her travel costs (though you can deduct
some costs).
Specifically,
the restrictions apply only to additional costs incurred by having your non-employee
spouse travel with you. For example, the expense of a hotel room or for traveling
by car would likely be fully deductible since the cost to rent the room or to
travel alone or with another person would be the same, even in a rented
car.
© 2024