Before we all rush to book our plane tickets and get out of the country for a well-deserved and long-awaited vacation, it is a good idea to check with your accountant if your trip can be deducible as a business expense.
First, you must be traveling away from your tax home. Your tax home is your business's "home base" location. For example, if you live in NJ but work in NYC and your business is in NYC, your tax home is in NYC.
So, what exactly makes it deductible?
It's all about INTENTION. You need to show a clear intention that serves a benefit to your business. You must conduct business EACH day that you wish to deduct costs such as hotel and meals for the trip. If you spend the majority of your days for business, you can deduct the airfare or transportation costs to and from your destination.
Here are some example of activities that you can take for business:
Conventions - Travel expenses for conventions are deductible if you can show that your attendance benefits your trade or business. Special rules apply to conventions held outside the North American area.
Establishing a business relationship - You can meet with clients, potential clients, potential partners, vendors and other business contacts to establish or fortify business relationships
Seminars - See if there is a live workshop or even in town at the same time that you can attend that benefits your business.
Meeting with a buyer or seller / scoping out property - Perhaps you are considering opening an office in an additional location
Retreats and board meetings - Host a company retreat or board meeting and keep minutes
What costs can you deduct?
Airplane, train, bus, taxis etc. when traveling to a business destination including to/from a meal or meeting
Rental car fees or use of your vehicle using mileage or actual expenses
Meals (not entertainment)
Internet and phone service
Tips for services related to travel (e.g., housekeeping, bag handling)
What can you not deduct?
The costs you incur while on indefinite assignments in a new location
The retail cost of a ticket/hotel if you used miles/points and incurred no actual cost
Your family's expenses
The personal costs of your trip if it was not primarily business
Traveling outside the US?
The rules are a bit stricter. If you travel outside the United States primarily for business but spend some of your time on other activities, you can only deduct the business portion of your cost of getting to and from your destination. You must allocate the costs among business days and non-business days.
What documentation do you need?
It is a good idea to have a calendar of the events for your days traveling so you can show the various business activities taken on the trip. You will need to have evidence to show the costs incurred (no, bank and credit card statements are not enough) and for expenses like meals, you want to also document the business purpose and with whom you met.
What do I recommend?
Keep a business travel journal to log all the events and receipts to make sure nothing is missed. This is one of the most beneficial ways to save money in taxes but one of the hardest to produce documents for if you do not stay organized.
Book business appointments before you depart and save the invites on your calendar.
Do your best to have some type of business activity every day of your trip to maximize the deductibility.
WRAP THE WEEKEND! - If you are conducting business on Friday and on Monday and therefore must stay the weekend, the costs to stay are deductible as well.
BONUS - Business meals purchased from restaurants in 2021 are 100% deductible instead of 50% so now you can take full advantage of this!