How to Deduct Business Travel Expenses

Ordinary and necessary travel expenses are deductible when you travel away from home on business. You are considered to be traveling away from home if:

• Your duties require you to be away from the general area of your “tax home” substantially longer than an ordinary day’s work, and
• You need to sleep or rest to meet the demands of your work while away from home.

In order to be deductible, the expense must be reasonable and not lavish under the circumstances.

Determining your tax home

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain a family home. If you have more than one regular place of business, your tax home is your main place of business. If you don’t have a regular or a main place of business because of the nature of your work, then your tax home might be the place where you regularly live.

No regular or main place of business

If you don’t have a regular or main place of business and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you can’t take a travel expense deduction because you are never considered to be traveling away from home.

If you think you might fall into this category, consulting a tax professional would be advisable.

More than one place of business

If you work in more than one place, determining your main place of work depends on the following three factors:

• The total time you ordinarily spend in each place.
• The level of your business activity in each place.
• Whether your income from each place is significant or insignificant.

Example: Sarah lives in Vail, Colorado, where she works a seasonal job for eight months each year and earns $60,000. She also works a seasonal job for four months in Miami and earns $25,000. Vail is Sarah’s main place of work because she spends most of her time and earns most of her income there.

Example: Dan is an outside salesperson with a sales territory covering several states. His employer’s main office is in Newark, but that is outside his sales territory. His work assignments are temporary, and he has no way of knowing where his future assignments will be located. Dan has a room in his married sister’s house in Nashville, where he stays for one or two weekends a year, but does not work in the area. Because he doesn’t satisfy any of the three factors listed above, he is an itinerant and has no tax home. Thus, he can’t deduct his travel expenses.

If you can’t substantiate your business travel expenses, the IRS will deny your deductions, increase your taxable income, and add interest and penalties on top of the additional amounts you owe.

When traveling for business, you must keep records of all the expenses you have and any advances you receive from an employer. You can use a log, diary, notebook, or any other written record to keep track of your expenses. It’s much easier to assemble the records you need as you incur your travel expenses rather than try to cobble together such documents if the IRS contacts you for an audit.

As you can see, the IRS requirements for deducting travel expenses can get quite complicated, especially if you have more than one business location. Thus, it would be wise to hire an accounting firm or a tax professional to help with navigating these rules.