What is the Definition of Business Travel?

A business travel definition, including what business travel expenses are tax deductible for businesses and taxpayers.

What's the Definition of Business Travel

Introduction

The simplest business travel definition is travel that is undertaken for business purposes. Business travel does not include daily commutes. However, that does not really get to the gist of the question we’re really trying to answer.

More specifically, according to the IRS the definition of business travel is travel that the taxpayer does, ‘away from their home’ for business purposes.

In this post, we will go over the definition of business travel, providing a business travel definition for the purpose of expenses. This includes what qualifies as business travel expenses for tax deduction purposes and how to deduct business travel expenses. This post includes the information needed for both personal and business tax returns.

For companies, business travel is a significant expense. For most companies, business travel is the largest expense. Therefore, it is important to understand the definition of business travel for expenses and accounting purposes. This way, both companies, and individual maximize their cost savings.

Business Travel Defined

According to the IRS, for travel to be considered ‘business travel’ that qualifies for tax-deductible business travel expenses the travel needs to be ‘away from home’ for a duration longer than an ordinary day’s worth of work. The IRS defines ‘away from home’ as outside of the entire city or general area outside of the location of the main place of business. Also, a duration longer than a day’s worth of work typically means that the business traveler stays overnight.

What Business Travel Expenses Are Tax Deductible?

The IRS defines business travel expenses that are tax deductible as ‘ordinary and necessary’ expenses incurred while traveling away from home for work. These expenses include transportation, lodging, meals, entertainment, and incidentals (such as tips). Business travel expenses can be divided and grouped into the categories as listed below. Each category often has different rules and limits about how to deduct and how much is tax deductible, which will be explained in the following section.

  • Meals and entertainment such as lunches, dinners, shows, sporting events, etc.
  • Travel, such as by personal car, plane, train, bus, etc.
  • Transportation, such as fare for taxis or other types of transportation to and from the airport, train station or hotel (including transportation between the hotel and work location.
  • Lodging, such as hotels and Airbnb rentals.
  • Incidental, such as tips; for example, baggage claim tips.
  • Dry cleaning and laundry.
  • Business calls while on a business trip. This includes business communications by fax machines or other business communication devices.
  • Other ordinary and necessary expenses related to business travel.

How to Deduct Each Type of Busines Travel Expense

Meal and Entertainment Expenses

Meal and entertainment expenses involve taking clients, colleagues, prospects, partners, etc. out for meals and entertainment. From a tax deduction perspective, the IRS allows for 50% of these expenses to be deducted.

How to Deduct as a Business

Businesses typically reimburse employees and contractors the full amount of meals and entertainment expenses. The business then subsequently deducts 50% of these expenses from their business tax return. Businesses cannot deduct any amount of meals and entertainment expenses that were not reimbursed to employees or contractors.

How to Deduct as a Taxpayer

Taxpayers reimbursed in full for meals and entertainment expenses do not have anything to deduct from their personal tax return. Typically these taxpayers are employees of companies or contractors working under employment contracts that include full reimbursement of business travel expenses.

However, taxpayers that work as employees can deduct 50% of unreimbursed meals and entertainment expenses from their tax return. Also, only 50% of meals and entertainment expenses are deductible from the tax return of self-employed taxpayers who pay these expenses out-of-pocket and are not reimbursed for them.

Travel and Transportation

Travel expenses by plane, train, bus or personal car to the business travel destination are tax deductible. Transportation expenses such as fares for taxis and other types of transportation are also tax deductible. However, some important notes need to be mentioned about the topic of travel when the travel is done using the taxpayer’s personal car.


Notes about travel and transportation by personal car.

The cost of travel if you drive a personal car between your home and your business travel destination is tax deductible. Also, the cost of travel while using a personal car at a business destination is tax deductible. For example, the commute between your hotel and office or client in the city the traveled to for business.

With that said, the IRS provides two ways to calculate this tax deduction amount. The Actual Car Expense Method and the Standard Mileage Rate method. The easiest method is the Standard Mileage Rate method. Check out this article for more information and a comparison of these two methods, How to Maximize Business Use Car Tax Deductions. Also, check out this page for an up-to-date list of per mile reimbursement rates for each year, IRS Standard Mileage Rate Tax Deductions. These rates are used for the Standard Mileage Rate method. For 2019 the standard mileage rate is $0.58 per business mile, $0.20 per moving mile, $0.14 per charitable mile. The IRS establishes these amount by taking into consideration fuel costs, wear and tear on the car and vehicle depreciation.


How to Deduct as a Business

Business travel expense costs are tax deductible by the business if reward points were not used to buy train, plane or bus tickets. The business can deduct the full amount of these expenses if the business reimburses employees and contractors the full amount of these expenses. In this case, the business can deduct the full amount of these expenses. The business cannot deduct the amount of travel and transportation expenses that are were not reimbursed. It is the responsibility of the employee or contractor to take the deductions.


Personal Car Use

Typically businesses will reimburse employees that drive their personal car for business trips. The standard mileage rate is typically used to calculate the reimbursement amount. Sometimes businesses will reimburse their employees or contractors more. However, whatever the employee or contractor is reimbursed, the business is only allowed to deduct the per mile amount for business travel specified by the IRS. Each year these amounts change.

Review the following post if you drive an employer-provided car and want to know about employer-provided vehicle tax deductions: Employer-Provided Car and Truck Expense Tax Deductions.


How to Deduct as a Taxpayer

Travel expenses are tax deductible if the taxpayer paid for their plane, train or bus ticket out of pocket and they were not reimbursed. However, travel expenses are not deductible if reward points were used to buy by train, plane or bus tickets.

Review the following post if you drive an employer-provided car and want to know about employer-provided vehicle tax deductions: Employer-Provided Car and Truck Expense Tax Deductions.


Personal Car Use and Consideration for Changes to the Tax Law as of 2018

In regards to travel by personal car, there are special details that need to be taken into consideration. For years prior to 2018 taxpayers employed by a company, on a payroll (i.e. not a contractor) and not reimbursed for business travel transportation with their personal car qualify to deduct this cost from their personal income tax return. However, for years 2018 to 2023 taxpayers who are employees can no longer take this deduction.


Lodging

Lodging includes the cost of room and board while the business traveler is away on an overnight business trip.

How to Deduct as a Business

Businesses can deduct the full amount of lodging expenses that are reimbursed to employees and contractors.

How to Deduct as a Taxpayer

Employees that are not reimbursed by their employers can deduct the full amount of lodging expenses incurred during business travel from their tax returns. For those that are self-employed, they can also deduct the full amount of lodging expenses that were paid out-of-pocket while traveling for business.

Incidental

Incidental expenses are the tiny expenses incurred while traveling for business. This includes things like tips, such as baggage handler tips or meal tips. Personal expenses are not incidental expenses.

How to Deduct as a Business

Employees and contractors are typically reimbursed up to $5 per day for incidental expenses incurred while traveling for work. The company then subsequently deducts $5 per day per business traveler from the company’s tax return.

How to Deduct as a Taxpayer

Employees reimbursed by their employers for incidental expenses cannot deduct incidental expenses from their tax return. However, self-employed, who pay incidental expenses out of pocket, can deduct up to $5 per day they were away for business travel from their tax return.

Other Business Travel Expenses

Other ordinary and necessary expenses related to business travel are tax deductible. These include things like the cost of dry cleaning and laundry. Business calls, including the use of fax machines. Stenographer fees, computer rental fees, etc.

How to Deduct as a Business

Expenses that fall into this category, which are reimbursed to the employee or contractor are fully deductible by the business. However, please consult a certified tax professional as needed.

How to Deduct as a Taxpayer

As an employee of a company, and of these expenses that were not reimbursed by your employer as tax-deductible on your personal tax return. For the self-employed and of these expenses paid out-of-pocket are tax deductible. However, please consult a certified tax professional as needed.

About Falcon Expenses, Inc.

Falcon Expenses is an iOS solution for expense tracking and management. Scan receipts, we type merchant, date and amount, auto-track mileage expenses via GPS and log billable hours with an integrated timer. Quickly organize expenses by time period, project or client and easily prepare reports for email to anyone in PDF or spreadsheet formats, all from your phone. Use for reimbursements, taxes, record keeping or invoicing. Falcon Expenses is great for professionals, freelancers, realtors, business travelers, truckers and more. Find out more, here.

You may also like...