If you and your employees are traveling for business this summer, there are several considerations to keep in mind. Under tax law, you must meet certain requirements for out-of-town business travel within the United States to claim deductions. The rules apply if the business conducted reasonably requires an overnight stay.
Under the Tax Cuts and Jobs Act, employees cannot deduct their unreimbursed travel expenses on their own tax returns through 2025. That is because unreimbursed employee business expenses are “miscellaneous itemized deductions” that are not deductible through 2025.
However, self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.
Rules that come into play
The actual travel costs (for example, plane fare and cabs to the airport) are deductible for out-of-town business trips. You are also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they are not connected to a business conversation or other business function. Although there was a temporary 100% deduction in 2021 and 2022 for business food and beverages provided by a restaurant, it was not extended to 2023. Therefore, again, there is a 50% limit on deducting eligible business meals this year.
Remember that no deduction is allowed for meal or lodging expenses that are “lavish or extravagant,” a term interpreted as “unreasonable.”
Personal entertainment costs on the trip are not deductible, but business-related expenses such as 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, etc., incurred for the business days are deductible — not those for the personal vacation days.
On the other hand, concerning the cost of the travel itself (plane fare, etc.), if the trip is primarily business, the travel cost can be deducted in its entirety, and no allocation is required. Conversely, no travel costs are deductible if the trip is primarily personal. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each (although this isn’t the sole factor).
If the trip does not involve the actual conduct of business but is to attend a convention, seminar, etc., the IRS may check the nature of the meetings carefully to ensure it is not a vacation in disguise. Retain all material helpful in establishing this travel's business or professional nature.
The rules for deducting the costs of a spouse accompanying you on a business trip are very restrictive. No deduction is allowed unless the spouse is an employee of you or your company and the spouse’s travel is also for a business purpose.
Finally, note that personal expenses you incur at home due to taking the trip are not deductible. For example, let’s say you have to board a pet while you’re away. The cost is not deductible.