How to Maximize Small Business Travel Deductions This Year

As tax day approaches each year, the hunt to find every tax deduction to lower your taxable rate as a small business owner is ongoing. Business travel deductions offer a way to reduce your net earnings, but they come with a lot of rules. Read on to learn the Internal Revenue Service (IRS) rules for claiming business travel deductions.

Defining deductible business travel expenses

Business travel expenses are travel costs associated with running a business or costs incurred when you are away from your principal place of business (called your tax home). Your home office, downtown office space, or the city in which you live, if you have multiple stores, could be considered a tax home. There are special tax rules for having more than one place of business, no regular place or business, or a temporary assignment.

Many small business travel expenses are tax-deductible. They don’t include personal expenses or ones used to determine your business’ cost of goods sold. Trips for pleasure can never be deducted.

Pro tip: If a family member travels with you, you can’t claim a travel deduction for their expenses. For the travel expenses of the family member to be deductible, they should be an employee of the business.

What are the tax rules for deducting small business travel expenses?

The general rule for deducting business travel expenses is the expenses must be ordinary and necessary.

• An ordinary business travel expense means the expense is typical in your line of business or industry.
• A necessary expense is one that is appropriate and helpful for your business.

Whether an expense is ordinary and necessary depends on facts and circumstances, which vary based on your job role and industry. If you want to deduct a shopping excursion for new attire for an important business trip, you probably want to think twice. Neither the shopping trip nor the purchase of everyday clothing count for deductions.

The ordinary and necessary principle can help you better decide whether your small business travel expenses are deductible.

Items that qualify as business travel deductions include:

• Air travel and pre-check
• Rental car
• Conferences
• Lodging
• Meals¹
• Shipping of baggage or trade show material
• Dry cleaning and laundry while on a business trip
• Fares for taxis, commuter buses, or transportation between:
  • The airport or train station and your hotel
  • The hotel and the work location
• Tips paid during your business excursion
• Business calls – fax, cell, or landline
• Work use of your personal vehicle while on a business trip²
• Technology – such as computer rental or wi-fi fees

Note: From 2021-2022, temporary rules allowed you to deduct 100% of your food and beverage expenses. However, these guidelines have reverted to the previous 50% deduction limit.

What about deducting international business travel?

The IRS rules differ if part or all of your business trip is outside the country. Some of your deductions for the cost of getting to and from the destination may be limited if you spend time on personal activities during the trip. For a more extended trip, your international travel is considered business-related and deductible if you were outside the U.S. for more than a week and 25% or less of the time abroad was spent on personal activities. In other words, for a trip longer than a week to be expensed, you must focus 75% of the trip time on business-related matters.

Best practices for taking small business travel deductions

There are best practices for taking small business travel deductions. While traveling away from your place of business, keep records of all expenses incurred and any advances received, and keep all receipts. Expense reports should be kept in case the IRS questions a deduction and to substantiate the numbers on your tax return.

It can get confusing whether certain travel expenses are deductible or not. As a taxpayer, you must properly report and track potentially deductible expenses.

If you need help determining what travel deductions you can make, look to a Block Advisors certified small business tax pro. We can help manage your taxes year-round and have the bookkeeping tools and services to keep you on track, ensure your books are accurate, and help you focus on what you love.

Where to show business travel expenses on your tax return

Where you show qualified business travel expenses depends on your business entity.

• Corporations report the small business expenses in the “Deductions” section of IRS Form 1120.
• Multiple-member LLCs and partnerships should report expenses in the “Deductions” section on Form 1065.
• Single-member LLCs and sole proprietors should report the business travel expenses in the “Expenses” section of Schedule C.

Help with deducting business travel expenses.

Don’t sweat if you’re still unsure about what you can and can’t deduct. Block Advisors has your back.

Use one of our small business certified tax pros to ease your mind. We’ll help you claim all the self-employed tax deductions you are entitled to – from travel to everyday business expenses.

A Block Advisors expert can help you get back to business with services like tax preparation, payroll, and bookkeeping. Our team is your team. 

Make a tax appointment.

¹ Instead of keeping records of your meal expenses and deducting the actual cost, you can generally use a standard meal allowance, depending on where you travel. The deduction for business meals is generally limited to 50% of the non-reimbursed cost.

² You can deduct actual expenses or the standard mileage rate. You can also deduct business-related tolls and parking fees. If you rent a car, you can only deduct the business-use portion of the expense.

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This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice.