Business Trip - Tax Deductible or Not?

One of our past articles discussed “Business Travel, Meals and Entertainment Expenses”. We received a request to expand on business trip tax deductions. In this article, we cover some of the commonly asked questions associated with tax deductions for a business trip.

I need to take a business trip.  Are my travel expenses going to be deductible?

This all depends on the purpose of your trip.  If the travel is primarily for a bona fide business activity then yes, they will be deductible.  Of course your business meals will still only be 50% deductible per federal rules.

Will my expenses be deductible if I combine the business trip with a personal vacation?

Yes, but only the portion of your expenses directly related to business.  Expenses that are personal in nature are not deductible. You bear the burden of proving that your travel plans were for both business and personal reasons.    For example, if you travel to Hawaii for a convention which will last 3 days, but you plan to stay 2 additional days to do some sightseeing, the expenses for your 3 days of business (i.e. your meals, lodging, etc.) as well as 100% of your airfare would be deductible travel expenses while the meals, lodging, etc. for the 2 days of sightseeing would be considered personal in nature and thus not deductible.

What if my primary purpose for the trip is not business, but I do engage in some business activity while on vacation, will my expenses still be deductible?

No, if the primary purpose of your trip is not to engage in business activities, none of your expenses are deductible.  Again, you bear the burden of proof.  If you planned to conduct business on this trip, the meals, lodging, etc. related to the business portion of it are deductible.  In this situation, the cost of your transportation to and from your destination is not deductible since the primary purpose of your trip was for personal reasons.  If you did not plan to conduct business, but just take a personal vacation, the expenses are not deductible.  It is a very fine line, but one the IRS may look at if you deduct travel expenses for travel in connection with a vacation.  For example, if you travel to an exotic location for a vacation and have the opportunity to conduct some business activity, the travel deduction would not be allowed.  Or, if you travel to a location to visit a sick friend or relative, but not for business, and you happen to conduct some business while traveling, your travel expense deduction will not be allowed.

My business travel will take me out of the country; do the same rules apply to deductibility of my expenses?

Yes, the same rules do apply to foreign as well as domestic travel, with certain special rules.  For example, if you are combining business and personal out of country travel, you may be able to deduct all of the expenses if: (1) your business travel is primarily for a bona fide business purpose, (2) the entire trip lasts 1 week or less, and (3) your personal portion is 25% or less of the total time spent on the trip.  This time is calculated in days, which are made up of the hours appropriate for conducting business (i.e. 8:00am to 5:00pm).

What is considered foreign travel?

Foreign travel is any travel that is outside of the “North American Area”.

The purpose of my trip out of the country is to attend a seminar; will this change the deductibility of my expenses?

There are specific rules regarding foreign travel for business seminars and conventions.  You must show that the meeting you are attending was directly related to the conduct of your trade or business, and that it was “reasonable” for the meeting to be held outside of the North American Area.

What do you mean by the term “North American Area”?

The IRS has defined the “North American Area” as the United States , United States possessions, the Trust Territory of the Pacific Islands, Canada , Mexico , Palau , Barbados , Jamaica , Grenada , the Marshall Islands , and the federal States of Micronesia.

What are United States Possessions?

The United States possessions are Puerto Rico, the US Virgin Islands, American Samoa , the Panama Canal Zone, Commonwealth of the Northern Mariana Islands, St. Croix, St Thomas , and Guam .

How do we determine the reasonableness of the location?

There are four factors: (1) The purpose of such meeting and the activities taking place, (2) the purposes and activities of the sponsoring organization or group, (3) the residences of the active members of the sponsoring organization and the places at which other meetings of the sponsoring organization or groups have been or will be held, and (4) such other relevant factors as the taxpayer may present.

What if my convention is not in a country but on a cruise ship?

If your convention is at sea, you may deduct up to $2,000 per year if you (1) establish that the purpose of your meeting is directly connected to the activity or conduct of a trade or business, (2) the cruise ship is registered in the United States, (3) all ports of call are located in the United States or it possessions, and (4) the taxpayer attaches to his tax return for the year in question two informational statements.

What are the informational statements that I need to attach to my return?

The first statement (which must be signed by the individual attending the meeting) must include information showing the total days of the trip excluding travel to and from the ship, the number of hours devoted each day to scheduled business activities, and a program of the scheduled business activities of the meeting.  The second statement (which must be signed by an officer of the organization sponsoring the meeting) must include a schedule of business activities of each day of the meeting, and the number of hours, which the individual attending the meeting actually attended at such, scheduled activities.

What about travel for charities, or medical purposes?

Amounts paid incident to providing of services to a charitable organization are deductible as a charitable contribution.  But you need to be careful with this. To be deductible the expenditures must be made out of a “detached and disinterested generosity”. Thus if your primary motive is to provide personal benefit to someone other than the charity, the contribution is non-deductible.  As far as medical expenses, expenditures for travel that are primarily for and essential to the treatment of a specific medical condition are deductible as itemized deductions subject to the floor imposed which is 7.5% of adjusted gross income.

If I am traveling for my education, can I deduct the expenses?

No, educational travel is not deductible except in the case that the education is to maintain or improve skills required by the individual's current employer or other trade or business or meets the express requirements of the individual's employer or the requirements of applicable law imposed as a condition to the retention of an established employment relationship, status or rate of compensation.  For teachers, the same rules as for business travel apply if the purpose is primarily for the business activity of teaching.

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