Travel Deductions for the Self Employed
This section intends to provide information regarding which travel expenses are eligible deductions. This and more detailed information can be found in IRS Publication 463.
If work requires you to be away from your tax home or if you need to sleep or rest while away for work, you may deduct travel expenses. Please note that if your expenses for an employee to conduct business away from his or her tax home meet the same criteria, you may likewise deduct his or her expenses. It is necessary to keep a record of these expenses.
Your tax home is your regular place of business; if you have more than one place of business, it is your principal workplace; and if you do not have a regular or main place of business it may be your residence.
If you do not live in the same place as your tax home, or if you work in more than one location, you may not deduct expenses while at your tax home. For example, you may live in the Baltimore-Washington metropolitan area suburb of Alexandria, VA but maintain your workplace in a Maryland suburb. You may deduct travel expenses when on a temporary assignment but if you go home on days off you still may not deduct expenses while at home. For example, your work requires you to be in New York during the week but you travel home to Virginia on the weekends; expenses in Virginia would not be travel-related. However, you can deduct your travel expenses while travelling between your temporary place of work and your tax home (up to the amount that it would have cost you to remain at your temporary domicile).
Transportation costs to and from your tax home and your business destination are eligible deductions. These can include travel by airplane, bus, train or car. If you did not pay for the ticket or if you used a mileage award, your cost is zero and the fare is not deductible. Travel expenses to and from meals are deductible only if there is no access to meals at your place of business or lodging.
If your trip is for both business and personal reasons, only the business portion is deductible. If the delineation between personal and business use time or expenses is not clear, you may use a percentage calculation. There are set limits for cruise ship and luxury liner transportation for business purposes.
Taxi, commuter bus and airport limousine fares are deductible only to and from the airport or train or bus station and your hotel, and the hotel and your away place(s) of business or meetings. Transportation or shipping of baggage or business-related materials follows the same rules.
Operating and maintaining your car while away from home on business is an eligible deduction. You can either deduct actual expenses or a standard mileage rate, as well as business-related tolls and parking. If you rent a car while away, you can only deduct the portion used for business.
You can deduct lodging costs if your business trip is overnight or long enough that you need to stop for rest or sleep to properly perform your duties.
You can deduct the cost of food, beverages, taxes, and related tips when away for business, provided that you are either away from your tax home long enough to need to sleep or rest (lodging) or that it is business-related entertainment. For example, meals when conducting business in New York are eligible expenses. If, however, you travel from Alexandria to Norfolk for the day and return in the evening, your meal would not be an eligible expense.
The expenses cannot be “lavish or extravagant”, meaning that the costs are reasonable considering the circumstances. For example, a business dinner with the president of another company would cost more than a business lunch with a peer. The expenses are not limited to a specific dollar amount.
There is a 50% limit deduction for meals, either using actual costs or a standard meal allowance.
If you keep records of your costs, you can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50%.
Or, as an alternative, you can use the “standard meal allowance” (a.k.a. per diem) method. It allows you to use a set amount (depending on where and when you travel) for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. However, if you use this method, you still must keep adequate records to prove the time, place, and business purpose of your travel.
Incidental expenses include fees and tips for people other than servers for meals such as bellhops and stewardesses, transportation other than previously discussed, other postage, even if necessary to file travel vouchers or other company-related expenses. Incidental expenses are not usually deductible unless included by using the standard meal allowance method.
Note that self employed persons and related parties (e.g. you and your corporation) must use the actual cost method and not the per diem method.