Summer is a season for travel – both for personal and business reasons. It is therefore important to know the rules on deducting the cost of your out-of-town business travel within the United States. These rules only apply if the business conducted out of town reasonably requires an overnight stay.
The actual costs of travel (e.g., plane fare, cab to airport, etc.) 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 “personal,” that is, not connected with business. Remember, though, as with all deductible meals, only 50 percent of the cost is allowed.
However, no deduction is allowed for meal or lodging expenses that are considered “lavish or extravagant,” a term that has been interpreted to mean “unreasonable.”
Personal entertainment costs on the trip are not deductible, but business-related costs such as for dry-cleaning, phone calls, and computer rentals are deductible.
If a trip is a combined business/pleasure trip, some of the costs must be allocated. For example, if you fly to a location for five days of business meetings and stay on for an additional period of vacation, only the cost of meals, lodging, etc., for the business days is deductible — not for the personal vacation days.
When the purpose of the travel is primarily business, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each, although this is not the sole factor.
If the trip does not involve the actual conduct of business but is for the purpose of attending a convention, seminar, etc., the IRS checks the nature of the meetings carefully to make sure they are not vacations in disguise. Make sure to save all documentation that will be helpful in establishing the business or professional nature of this travel.
The rules on deducting the costs for your spouse if he or she accompanies you on a business trip are very restrictive. No deduction is allowed unless he or she is an employee of yours or your company and their travel is also for a business purpose.
Note that personal expenses incurred at home as a result of taking the trip, such as boarding a pet while you are away are not deductible.