What Is Your “Tax Home”?
Your tax home is a concept set by the IRS to help determine whether a trip is tax deductible. It’s defined by the IRS as the entire city or general area where your regular place of business is located. It’s not necessarily the area where you live. Your tax home can be used to determine whether your business travel expenses are deductible after you’ve determined where it’s located. You can probably count your expenses during travel as business deductions if you have to leave your tax home overnight or if you otherwise need time to rest and sleep while you’re away.
Charges on Your Hotel Bill
Charges for your room and associated tax are deductible, as are laundry expenses and charges for phone calls or for use of a fax machine. Tips are deductible as well. But additional personal charges, such as gym fees or fees for movies or games aren’t deductible.
The 50% Rule for Meals
You can deduct the cost of meals while you’re traveling, but entertainment expenses are no longer deductible and you can’t deduct “lavish or extravagant” meals. Meal costs are deductible at 50%. The 50% limit also applies to taxes and tips. You can use either your actual costs or a standard meal allowance to take a meal cost deduction, as long as it doesn’t exceed the 50% limit.
The Cost of Bringing a Spouse, Friend or Employee
The cost of bringing a spouse, child, or anyone else along on a business trip is considered a personal expense and isn’t deductible. But you may be able to deduct travel expenses for the individual if:
The person is an employeeThey have a bona fide business purpose for traveling with youThey would otherwise be allowed to deduct travel expenses
Using Per Diems To Calculate Employee Travel Costs
The term “per diem” means “per day.” Per diems are amounts that are considered reasonable for daily meals and miscellaneous expenses while traveling. Per diem rates are set for U.S. and overseas travel, and the rates differ depending on the area. They’re higher in larger U.S. cities than for sections of the country outside larger metropolitan areas. Companies can set their own per diem rates, but most businesses use the rates set by the U.S. government. Per diem reimbursements aren’t taxable unless they’re greater than the maximum rate set by the General Service Administration. The excess is taxable to the employee. If you don’t spend all your time on business activities during an international trip, you can only deduct the business portion of getting to and from the destination. You must allocate costs between business and personal activities.
Combined Business/Personal Trips
Your trip must be entirely business-related for you to take deductions for travel costs if you remain in the U.S., but some “incidental” personal time is okay. It would be incidental to the main purpose of your trip if you travel to Dallas for business and you spend an evening with family in the area while you’re there. But attempting to turn a personal trip into a business trip won’t work unless the trip is substantially for business purposes. The IRS indicates that “the scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip."
International Business Travel
The rules are different if part or all of your trip takes you outside the U.S. Your international travel may be considered business-related if you were outside the U.S. for more than a week and less than 25% of the time was spent on personal activities. You can deduct the costs of your entire trip if it takes you outside the U.S. and you spend the entire time on business activities, but you must have “substantial control” over the itinerary. An employee traveling with you wouldn’t have control over the trip, but you would as the business owner would. You can only deduct the business portion of getting to and from the destination if you don’t spend all your time on business activities during an international trip. You must allocate costs between your business and personal activities.
The Cost of a Cruise (Within Limits)
The cost of a cruise may be deductible up to the specified limit determined by the IRS, which is $2,000 per year as of 2022. You must be able to show that the cruise was directly related to a business event, such as a business meeting or board of directors meeting. The IRS imposes specific additional strict requirements for deducting cruise travel as a business expense.
The Bottom Line
These tax deduction regulations are complicated, and there are many qualifications and exceptions. Consult with your tax and legal professionals before taking actions that could affect your business.
