Walter & Shuffain - Certified Public Accountants & Business Advisors

Are You Up to Date on Travel Deductions as Business Travel Returns?

Business travel is back.

COVID restrictions have eased, and in-person conferences are back on the calendar. And as more people return to offices, companies are warming to sending their employees on work trips.

For many businesses, it’s been a minute since they’ve had to account for employee travel expenses. So it might be time for a refresher on which expenses are tax-deductible, which aren’t, and what pandemic-related tax incentives are available.

When is it business travel?

A trip is considered business travel when you travel outside what’s known as your “tax home.” A tax home is the city or area where your primary place of business is located, regardless of where you live. For expenses to count as deductible travel costs, they have to be incurred away from your tax home for longer than a typical workday — but no longer than one year. Anything considered an “ordinary and necessary expense” of doing business would qualify.

As long as the expenses are business-related, most, if not all, expenses from a typical work trip can receive a tax deduction. So what is deductible?

Business Meals, Beverages

Perhaps the most significant change for business travel is a temporary tax incentive to encourage restaurant spending during the pandemic. Through the end of 2022, food and beverages from restaurants are 100% tax-deductible versus the usual 50% deduction for businesses. The 100% deduction applies to any restaurant meals and drinks purchased after December 31, 2020, and before January 1, 2023.

The IRS defines a restaurant as “a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” The deduction includes:

  • Restaurant takeout and delivery meals
  • Tax and tips
  • Hotel room service

Non-restaurant meals are still eligible for a 50% deduction, but the 100% deduction excludes prepackaged food and drinks from:

  • Grocery stores
  • Vending machines      
  • Kiosks
  • Convenience stores
  • Liquor stores
  • Hotel minibars

That means if you want to purchase a salad to go, buying it from a restaurant would get you a 100% deduction while buying it from a grocery store is only eligible for a 50% deduction.

Other rules for food and beverage deductions include:

  • Alcohol: Yes, you can deduct alcohol. Although businesses may put their own limitations on how much they choose to reimburse employees for alcohol purchases, alcohol still qualifies for a deduction as long as an employee or company representative is present, and if it can be considered a cost of doing business.
  • Airport meals are fair game, as are any meals you purchase while traveling to or from your destination.
  • Fancy meals don’t count. The IRS excludes meals that are “lavish or extravagant.”
  • No personal meals. You can’t take your spouse, family, or friends out for dinner and deduct it as a business travel expense. The same goes for any meals you purchase by yourself while at your destination.

Travel and Transportation

You can deduct 100% of the cost of any travel by airplane, train, bus, or car between your home and business destination. That includes car rental expenses. Also deductible are parking fees, tolls, and fares for taxis, shuttles, ferry rides, and other modes of transportation.

Hotels and Lodging

Hotel stays are tax-deductible, as are tips and fees for hotel staff and baggage carriers. Depending on how you schedule your trip, you may even be able to deduct lodging costs for non-workdays.

Shipping

You can write off costs for shipping baggage or any materials related to business operations.

Business Calls, Communication

Fees for calls, texts, or Wi-Fi usage during business travel are deductible.

Dry Cleaning, Laundry

Costs to launder work clothes on a business trip get a tax break.

Tips

Tips for services related to any of these expenses also qualify.

Gifts of up to $25

Gifts for clients or other business associates are included, although you can deduct no more than $25 per gift recipient. So if two clients each receive a $60 fruit basket, for a total of $120 spent on gifts, the company can write off $50 of the expense.

What Isn’t Deductible?

  • Entertainment (Although entertainment used to be a deductible business expense, the IRS changed that rule for most entertainment costs in 2018.)
  • Expenses that are “lavish or extravagant under the circumstances”
  • Fines and penalties
  • Personal expenses
  • Friends and family

Tracking Expenses

To make the most of your tax deductions, collect receipts and keep detailed records of all travel expenses. Set a standard meal allowance for traveling employees and write off that amount to make meal tracking easier.

Managing business travel expenses and calculating deductions requires attention to detail, and businesses may be out of practice after two years with little to no travel. If you need help figuring out business travel deductions, our team of professionals can assist your business in getting back on track — and ready for takeoff.