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Many Creative Entrepreneurs find themselves traveling at some point for their business. Whether it’s to travel to a destination wedding to capture the event or travel to a convention and learn something amazing to propel your creative business.
The question is, do you know what’s considered a travel deduction and what’s not?
First, let’s define travel…
The IRS defines travel as:
“You’re traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.”
Simple enough, so,
What is your tax home?
The IRS says:
“your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home”.
You still with me? Now, that we understand “Travel” let’s look at what you can deduct.
Airplane, train, bus or car between your home and your business destination, any taxi fares or ridesharing fees like Uber or Lyft, fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel, and the work location, and from one customer to another, or from one place of business to another. Transportation also includes any tolls or parking fees associated when you’re traveling with rental cars and all costs to maintain the rental vehicle while you are traveling.
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All lodging such as hotel, motel, Air BNB, etc can be deducted.
All meals while on travel can be deducted
The shipping cost of baggage, and sample or display material between your regular and temporary work locations.
Dry Cleaning & Laundry
Yup, any dry cleaning or laundry costs related to your trip for business are business deductions
All tips paid for any of the services listed above can be included in your travel deduction.
What if my trip is for BUSINESS & PERSONAL?
There are two scenarios below that walk you through travel deductions for trips that involve personal and business time.
If your trip was PRIMARILY for BUSINESS:
The IRS states in Publication 463:
“If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.”
Let’s look at an example of how this would work.
If you took a trip to Los Angeles for business for a full week (7 Days) in June and while you were there you drove down and spent the weekend with a friend in Hollywood (2 days):
Your LA Hotel and food are all deductible as well as any transportation like taxes, uber, etc..
Any lodging in Hollywood or transportation to Hollywood along with any meals are personal and not deductible.
Let’s say your plane ticket was 1000.00 for two way flight to LA.
To figure out what you can deduct we have to figure out the %.
So your full trip was 7 days but 2 of them were personal.
So, 2 divided by 7 = 28.57%
We can deduct 100% – 28.57% = 71.42% of the trip was business we can deduct 71.42% of the ticket. So in this example, $714.20 would be a business deduction.
BEST PRACTICE: pay for the plane ticket from personal funds then reimburse yourself the $714.20 of the airfare from the business account to account for the business portion.
If your trip was PRIMARILY for PERSONAL:
The IRS also States in Publication 463:
“If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that is directly related to your business.”
For example, you go on vacation with your family to Florida to Disney World. You have a client who lives in Orlando and you meet that client for lunch to discuss business while you are there. This business lunch is deductible and can be paid for with a business bank account or credit card. But, that is it. The rest of the trip is a personal expense.
Before you book your next trip make sure you clearly understand what is a business expense and what is a personal expense and how you will be tracking each part of your trip.
You might be interested in learning about Meal Deductions here.
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I would love to know your thoughts on Travel Deductions? Do you track your deductions and do you feel confident in doing so?
Topic Number 511 – Business Travel Expenses
Publication 463 – Travel, Gift, and Car Expenses