Travel Expenses
According to the IRS, travel expenses are ordinary and necessary expenses that occur when you have to travel away from your tax home for work. Your tax home is the place where you do the majority of your business, and is usually the city or town where your business is located. Travel expenses can include meals, lodging, transportation, and more.
Transportation Expenses
If you are traveling away from your tax home on business by car, you can deduct the cost of transportation between your home and your business destination. If you drive your car, you can either use the IRS standard mileage rate or the actual cost of your car expenses. The standard mileage rates established by the IRS is updated at least once a year. If you choose to use the standard mileage rate for a year, you can’t deduct any actual car expenses, including depreciation, lease payments, and gasoline. You may find that it is better for you to claim your actual car expenses. If you do choose to claim your actual vehicle expenses and you use your vehicle for personal use, as well as business use, you must divide the expenses between the two. If you don’t travel using your car, you can deduct the cost of your taxi fare, commuter bus, airport limo, and any train or plane tickets.
Meal and Lodging Expenses
If you go on a business trip that is overnight or long enough that you need to stop for sleep or rest, you can deduct the cost of your meals and lodging expenses. You can deduct the cost of your hotel room or lodging as well as the cost of your dry cleaning, laundry, and tips. Meal expenses that you can claim as a business travel expense include food, drinks, taxes, and tips. You can usually only deduct 50% of the unreimbursed cost of your meals. However, you may be able to deduct 100% of your meal expenses if the meal was from a restaurant and was purchased between December 31, 2020 and January 1, 2023.
Entertainment Expenses
Although entertainment expenses generally stopped being deductible after January 1, 2018, you can still deduct entertainment expenses for promotional purposes. For example, if your company sponsors an event in order to promote your business, it may be deductible. You can also deduct the cost of food and beverages you provide during an entertainment event, if these costs are separate.
Recordkeeping
It is important to keep good records so that you can take tax deductions on business expenses. Keep your receipts, mileage records, and any other proof you may need. If you are audited, the IRS may ask you to prove that you were eligible for these tax deductions.
The Bottom Line
The Tax Cuts and Jobs Act of 2017 impacted the tax deductions of transportation, meals, and entertainment expenses for business owners and employees. It’s more important than ever to keep good records regarding transportation expenses, and entertainment expenses are now non-deductible business expenses.
