Tips to Optimize Your Business Travel Tax Deductions

income tax return form
Ken Teegardin, Flickr, (CC by 2.0)

Need to know what business travel expenses travelers can legitimately be deducted on a tax return Unfortunately, the answer isn't always simple. Travel-related tax deductions can be hard to figure out. It really depends on the business traveler’s individual circumstances.

Company travel policies, localities of travel, IRS travel regulations and procedures, overnight travel vs. day travel, foreign vs. domestic travel, and adequacy of record keeping are all factors that need to be considered when deciding what should actually be deducted on your tax return.

Why Tax Deductions for Travel Aren't So Straightforward

IRS continues to look closely at business travel deductions. Together with Congress, the IRS has generated a complex set of business travel laws, rules, regulations, procedures, and policies designed to curb some of the perceived abuses. However, this has added considerable complexity to the process.

Unfortunately, with the added complexities, now the pendulum has swung the other way. Today, reimbursed and unreimbursed business travelers alike can easily and mistakenly assume they’re not entitled to travel deductions when, in fact, they may be. Additionally, business travelers tend to rely on their own common sense definitions of business travel expenses which may or may not be influenced by their company’s own travel policies. Yet the IRS defines business travel expenses more broadly than both common sense and many company policies.

However, claiming all of the IRS business travel expenses that a business traveler is entitled to requires passing through a maze of record-keeping requirements where, in some cases, receipts may not be required at all and, in other cases, receipts may not be enough! The IRS has not simply curbed the perceived abuses in the area business travel, but it has made it difficult, if not impossible, for the average business traveler to confidently claim all of his legitimate travel deductions.

Tracking Travel Expenses

As any business traveler knows. expenses on the road can add up. That's why a number of online expense tracking services are now available for the business traveler. Many of these services are used to implement company travel-reimbursement plans, generate client bill-back reports, or simply to track basic travel expenses, and many of them offer apps that now allow capturing of receipts with your phone.

While these services perform their intended functions well, they are not designed to track and report amounts actually deductible by the business traveler on his/her tax return. However, these services can be used as a good starting point for 1) generating travel expense amounts actually deductible on one’s own tax return and 2) satisfying a maze of IRS and Tax Court rules which establish the "burden of proof" required to claim these deductions. Many of these services’ year-end reports will need to be modified or altered in order to claim all of your tax deductions and satisfy the IRS requirements at the same time.

Because everything is more expensive while on-the-road, it's necessary to keep track of every dime spent while away on business travel, even for "personal" expenses and even when receipts have been lost, misplaced or are otherwise unavailable, for example with tips. After all, at tax time, even these expenses may be deductible.

Tax Tips for Business Travelers to Maximize Deductions

Keep these tax tips in mind while you track your business travel expenses:

  • Always keep your receipts! It may be impossible to keep every receipt or even to obtain a receipt for every single expenditure. The IRS knows this, and they have implemented policies to assist taxpayers with this. However, although some may tell you that receipts aren't required for expenses under $75, don't be fooled. In those instances, a log may be required. The best policy is to keep every receipt possible.
  • Always maintain a record of reimbursed expenses. Company reimbursement policies are classified according to various IRS guidelines and the actual amounts reported to the IRS. Even if you are reimbursed, you may still qualify for tax deductions.
  • Log in the actual locations to which you travel. You may be entitled to deduct "standard" amounts for items such as meals and incidental expenses based on where you travel. In many cases, these standard amounts can be more than what was actually spent.
  • Deduct some personal expenses while you're on the road. But be careful in this area. The IRS knows you are incurring additional living expenses while traveling which you would not have had to incur had you been working from home. Obviously, the more "personal" these items are and the larger the dollar amount, the more they will be subject to scrutiny. You wouldn't want to purchase a new car while traveling and call it an "additional living expense" while on business travel, but many personal or recurring living expenses while traveling, such cell phones, entertainment, hygiene products, and over-the-counter medications, just to name a few, can be deducted. Again, reasonable limits need to be applied and documentation is still required.

    Keep these basic guidelines in mind as you approach a new year of business travel, and you and your tax advisor will be well on the way to safely claiming, deducting, and defending your legitimate travel expenses.