Q&A With Bill: Are My Travel Expenses Deductible?
A question I get asked frequently is, “What expenses can I deduct when traveling for work?” There are many factors that determine what is and isn’t deductible and much depends on your specific employment situation. So, let me try to address some of these here!
Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession or job. Generally, employees deduct these expenses by using Form 2106 (PDF), Employee Business Expenses, or Form 2106-EZ (PDF), Unreimbursed Employee Business Expenses, and Form 1040, Schedule A (PDF), Itemized Deductions. You can't deduct expenses that are lavish or extravagant, or that are for personal purposes.
Where Do You Work?
Generally, your “tax home” is the city or general area where your main place of business or work is located, regardless of where you maintain your “residential home”. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals or lodging in Milwaukee because that's your tax home. Your travel on weekends to your family home in Chicago isn't for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.
In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location.
What About Temporary Work?
You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can't deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if you realistically expect that you'll work there for more than one year, whether or not you actually work there that long.
If you realistically expect to work at a temporary location for one year or less, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes.
What If I’m Looking for Work?
You may deduct travel expenses, including meals and lodging you incurred in looking for a new job in your present trade or business. You may not deduct these expenses if you had them while looking for work in a new trade or business or while looking for work for the first time. If you're unemployed and there's a substantial break between the time of your past work and you’re looking for new work, you may not deduct these expenses, even if the new work is in the same trade or business as your previous work.
What Can I Deduct?
Deductible travel expenses while away from home include, but aren't limited to, the costs of:
- Travel by airplane, train, bus or car between your home and your business destination. (If you're provided with a ticket or you're riding free as a result of a frequent traveler or similar program, your cost is zero.)
- Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel and the work location, and from one customer to another, or from one place of business to another.
- Shipping of baggage, and sample or display material between your regular and temporary work locations.
- Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
- Meals and lodging.
- Dry cleaning and laundry.
- Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
- Tips you pay for services related to any of these expenses.
- Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer.)
- 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.
How Do I Calculate My Deductions?
If you're an employee, your allowable travel expenses are figured on Form 2106 or Form 2106-EZ. Your allowable unreimbursed expenses are carried from Form 2106 or Form 2106-EZ to Form 1040, Schedule A (PDF), and are subject to a limit based on 2% of adjusted gross income. If you don't itemize your deductions, you can't deduct these expenses. If you're self-employed, you can deduct travel expenses on Form 1040, Schedule C (PDF), Profit or Loss From Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit From Business (Sole Proprietorship), or if you're a farmer, on Form 1040, Schedule F (PDF), Profit or Loss From Farming.
As you can see, deducting work-related travel expenses can be quite complicated as there are several factors that determine if they meet IRS guidelines. I you have any questions about your specific situation or would like assistance with calculating your deductions, please CONTACT US right away. We’re here to help!