I know you won’t be surprised if the answer to that question is “Maybe”. It depends on your employment status and the nature of the trip itself.
Employee business expenses are no longer an itemized tax deduction. Therefore, travel expenses for a W-2 employee cannot be deducted from taxable income. All is not lost, however, if the employer has an accountable reimbursement plan. The employer can make a tax-free reimbursement to the employee of eligible travel expenses, making the expenses a tax deduction for the employer.
When do you incur travel expenses? You are traveling for federal income tax purposes only when you are away from your “tax home”, the location of your primary workplace, which might not be the same as your personal residence, your permanent home.
What are eligible travel expenses? These include, but are not exclusively: transportation (both to get to your destination and while there), lodging, meals (actual or based on published IRS per diem rates), course fees for an educational gathering (like CME for physicians), gratuities on eligible expenses, and internet and equipment fees. Please remember that meals are currently only deductible up to 50%. Before any of these is deductible, however, the reason for the trip must be established as being for business. That generally means that more than 50% of your time while away is spent on business activities, but it’s still possible to make a valid argument for a business deduction based on facts and circumstances if that threshold is not met. Fortunately, travel days count as business days. If you ever need documentation that the purpose of the trip was for business, it is important to be able to produce a contemporaneous log of your activities while away. That would include producing records of the amount, time, place, business purpose, and relationship of the expense to your business. Sadly, estimates are generally not acceptable.
If the trip is both business and personal (five days spent at CME with sightseeing on the weekend, for example), the travel is still deductible, but the hotel and other expenses incurred during the weekend would not be.
The above applies to travel to conferences in North America (including Canada, Mexico, and US territories). For other destinations, it may be necessary to allocate some of your travel expenses to non-deductible personal expenses if you are away more than a week and more than 25% of your time is spent on non-business activity. Expenses for conventions held outside of North America could be examined on audit unless it is as reasonable to hold the meeting outside North America as in it.
Cruising is a category unto itself. Expenses are deductible only if:
- A cruising convention is directly related to the active conduct of your business,
- All ports of call are in the US or its possessions, and the ship is registered in the US,
- You attach a statement to your tax return logging the schedule of business activities during the cruise, and
- You attach a statement to your tax return signed by an officer of the sponsoring organization that includes a schedule of business activities during the cruise.
After all that documentation, the maximum annual business deduction for a convention on a cruise ship is $2,000 per person. Given that limitation, a full deduction for the expenses of a cruise may be possible when the cruise is not part of the formal business convention or seminar.
What if your spouse joins you on the trip? If the spouse is an actual (not phantom) employee who also has a business purpose for the trip, those travel expenses are also deductible. If the trip for the spouse is strictly non-business, the spouse’s expenses would not be deductible. Those would include travel, meals, and the additional room charge over and above what a single accommodation would cost.
Virtual conferences held in remote locations are becoming a target of IRS scrutiny, so it is important to be able to substantiate the importance of the related activities that add value to the business purpose of the trip to that location.
The ability to combine rest and relaxation and business in a setting away from home is very appealing and can also be a tax savings if properly structured and documented. Please consult us with any questions you have about a tax deduction for your business trip, especially if less than 50% of your time away will be spent on business.
Article contributed by Terri L. Marakos CPA, CHBC
