Tax Deduction For Hotel And Transportation Expenses
Copyright 2010 by Morris Rosenthal - - contact info
Copyright 2010 by Morris Rosenthal
All Rights Reserved
International Travel Write-Offs and Per Diem For Schedule C Filing
Warning: These pages are not intended as professional advice. They are presented "as is", reader beware!
If you travel away from your home for business purposes, whether or not you have a home office, you can claim those travel expenses that are "ordinary and necessary" for your business. Here we are going to limit the discussion to transportation expenses and lodging, food and entertainment get their own section. You're still going to have to do your homework because the rules for lodging per diem and travel aren't the same for emplyees and employer, and if you're a sole proprietor, you're always the employer. The general guideline is you should stick with expenses that are normal for your trade or profession, but you may also have expenses that are necessary for your particular business model, and not necessarily so for others in similar businesses. The important thing is to document why the travel was a necessary business expense. Simply going on vacation and saving a lot of meal receipts in an envelope isn't going to cut it if you get a visit from the IRS. In fact, thanks to per diem allowances (a fixed daily deduction for meals etc., in different locals in the US and abroad), the envelope stuffed full of receipts is less important than the proof that the travel was primarily for business purposes.
The government considers expenses to be travel related if you simply stay away from your tax home on business for longer than a normal day, or if sleep is required. If you wanted to get up at 3:00 AM to drive some distance to a one day conference and rent a room at the conference center for a two hour nap at lunch, it's probably an acceptable write-off. For most sole proprietors, our tax home is the same as our home, but life can get pretty complicated if you try to run a business without having a home. As an itinerant living in motels and campsites without a base (even if that's a rented room), you can't take any travel expenses because your home is the road. Transportation expenses are always the actual cash outlay. If you travel for business on a free ticket thanks to frequent flier miles, your ticket cost is zero, and you have no deduction. I suspect travel vouchers accumulated for flight delays or cancelled connections are nondeductible as well.
If your trip is made entirely for business purposes, you can deduct 100% of the hotel and transportation expenses. If you travel somewhere for business purposes and tack a vacation or a side trip on the end, you can only deduct the expenses that were required for the business portion of the trip. On the other hand, if you are on vacation, and you make a side trip for business, you can deduct the expenses of the side trip. If you are traveling on business for weeks on end, you don't have to work seven days a week for the whole trip to be deductible as long as the sole purpose of the trip is business and you can prove it. If you spend less than a week outside of the US and combine business with pleasure, it counts as all business automatically. Travel outside the US is also considered 100% for business if you spend less than 25% of your time on non-business activities, if you can establish that taking a vacation was not "a major consideration" or if you can demonstrate that you had no control over the parameters of the trip. However, travel overseas for more than one year is not business travel, so be careful.
The truth is, the IRS is pretty generous about allocating days to business travel, especially when you are abroad. If you are admitting that business was only part of the reason for the trip, you need to count the number of days you were engaged in business activities and divide by the total number of days you were gone to get the percentage of expenses you can use for a business deduction. The travel days, leaving the country and returning, automatically count as business days as long as the trip was necessary for the business. Then, any weekends or holidays in the country you are visiting count as business days if you worked on both sides of them, ie, if you work Friday and Monday in a country with a Saturday/Sunday weekend, Saturday and Sunday get counted as business days because it's not expected that you would work on them.
Also, a day counts as a business day if your presence was required at any time during that day, independent of the time you spend in a meeting, sales call or seminar. Any day that you primarily pursue your business (this one is important for travel journalists) counts as a business day, and any day that you can't work on business do to uncontrollable circumstances (weather, power outage, etc) also counts as a business day. But they expect you to play fair, so if you travel to London for a trade show and then to India for a vacation, your travel write-off would be based on the business percentage of the trip multiplied by the necessary legs (US/London, India/US) - with no deduction at all for the London/India leg.. But don't take my short example as definitive of anything, read Publication 463.
I've always kept track of actual expenses for lodging when traveling for business. That turns out to be lucky, because a self employed person or sole proprietor can only use the per diem method for food, entertainment and incidentals when overseas. It took forever for me to find that information, didn't see it in any of the standard publications. It makes sense as the per diem rate for lodging over seas can be hundreds of dollars a day, using the state department per diem rates. Without this rule, a clever sole proprietor could rent a cheap room by the week or the month and end up with a tax deduction thousands or tens of thousands of dollars higher than his out-of-pocket expense. If you have employees traveling abroad, you can use the per diem for figuring reimbursements, but there are also some special limitations.
Planning A New Business | Estimating Business Taxes | Schedule C Deductions | Car Expenses | Freelancer and Contractor Payments | Section 179 Depreciation and Form 4562 | Employee Benefits and Pension Costs | Professional Services, Business Taxes and Fees | Hotel and Travel Expenses | Deducting Food and Entertainment | Inventory and Cost of Goods Sold | Sole Proprietor Statistics | Home Office Deductions | Self Employment Tax | The Self Employed Sole Proprietor