Know the Tax Rules for Summer Travel

July 15th, 2015

Are you traveling for business this summer? If you’re planning to take a tax deduction for your expenses, the rules may be more complicated than you think. Here’s a refresher.

The general rule. “Travel” expenses are ordinary and necessary costs incurred while away from your normal working area. “Away” means you’re away from your tax home overnight and you need to sleep or rest so you can complete your work.

Domestic travel. For domestic travel that’s entirely business related you can fully deduct expenses such as airfare, hotel, rental car, and gratuities. Your meals are 50% deductible.

What if you incur incidental personal expenses, such as a side trip to visit family or an amusement park, on a trip made primarily for business? The expenses related to your personal activities are not deductible.

If your travel is primarily personal, such as a vacation, your expenses generally cannot be deducted at all. However, you may be able to claim some deductions if, for example, you call on a client while on vacation. You can deduct the cost of the client visit, but not the travel or hotel costs of getting from your tax home to the client’s location.

Foreign travel. If you travel outside the U.S. and spend the entire time on business activities, your expenses are deductible. If you combine business and personal activities on an international trip, you must typically allocate your time between those activities. You can only deduct the business portion of getting to and from your destination. Total deductions are generally limited to the business percentage (business days divided by total days).

When your trip is partly domestic and partly international, use the domestic guidelines for the domestic portion and the international guidelines for the international portion.

As you make your summer travel plans, give us a call. We can help you navigate the rules.