Is your business driving a travel expense or a commuting expense? If it's business travel, it's deductible as a business expense. If it's commuting, it's not deductible. The IRS makes a distinction between commuting and business travel; commuting expenses are allowed only in specific cases, while business travel expenses are usually allowed, within limits.
What is Business Travel?
Business travel is an overall category of expenses that includes expenses for business owners and employees for business purposes:
- Driving to business locations, like driving to a customer's office, to pick up office supplies, or for a meeting at a restaurant
- Long-distance travel by plane, train, or car to business locations, including travel to a business conference or to meet with a customer at a location across the country
The IRS allows businesses to deduct expenses for business travel by owners and employees.
What are Commuting Expenses?
The distance between your home and your place of work is your commute, and the time you spend driving between home and work, no matter how far, is your commuting distance. The IRS says that daily travel does not generally allow deductions for commuting expenses. Think of it this way: Everyone needs to get to work, employees, and business owners alike, so this expense is not part of your business.
Commuting expenses are called "daily travel expenses," and these are not usually deductible as business expenses. One exception is daily travel to and from a "temporary workstation outside the metropolitan area where you live." For example, if you live in Davenport, Iowa, and you drive every day to Cedar Rapids, Iowa (80 miles) every day, you might be able to deduct this driving expense. But be aware that the term "metropolitan area" might be questionable. The term "temporary" is generally accepted by the IRS as lasting a year or less.
In one Tax Court case, a self-employed business owner traveled each day from home to temporary work sites up to 96 miles away, and back home each night. That's a long commute, but it's still commuting, not traveling. The Tax Court said that the worker's home and the temporary work sites were all within the general metropolitan area of a large Midwestern city, so the trips were commuting .
The IRS considers these business travel circumstances on a case-by-case basis, so it's best to talk to your tax professional if you want to deduct travel expenses.
What Qualifies as a Travel Expense?
Business travel, on the other hand, is not commuting, if it meets any of the following conditions:
Regular Work Location. If you have at least one regular work location away from your home and your travel is to a temporary work location in the same trade or business, regardless of the distance. Generally, the IRS considers that a temporary work location is one where your employment is expected to last one year or less.
Temporary Work Location. The travel is to a temporary work location outside the metropolitan area where you live and normally work.
Your home is your principal place of business and the travel is to another work location in the same trade or business, regardless of whether that location is regular or temporary and regardless of distance. The IRS considers that your home is your principal place of business if you deduct expenses for business use of your home (not as an employee).
What Business Travel Expenses Can I Deduct?
If your travel is not commuting but is business travel, you can deduct travel expenses including:
- Transportation by airplane, train, bus, or car between your home and your business destination
- Taxi, limo, or shuttle expenses
- Baggage fees or shipping of work-related materials (to a trade show, for example)
- Car expenses, for use of your own car or a rental car (you must separate out any personal use of a car, which is not deductible)
- Lodging and meals, if your trip is overnight or long enough that you need to stop for sleep or rest
- Dry cleaning and laundry expenses
- Business-related phone calls while you are away
- Tips for business-related expenses while you are traveling
- Other business-related expenses while you are traveling
IRS regulations on expense deductions for travel are complex; the purpose of this article is to give you some general information but not to cover all the details of the IRS definitions and regulations. For more details, refer to IRS Publication 463 - Travel, Entertainment, Gift, and Car Expenses.
What Do I Need to Know to Deduct Driving Expenses?
To qualify as a deductible expense, there are three hurdles you have to jump for driving expenses:
1. Is the business driving commuting? Is it a regular back-and-forth to work situation? Does the driving trip take longer than a day, requiring an overnight stay? If it's home-to-work or not an overnight situation, it's commuting and it's not deductible as a business expense.
2. Is there a specific business purpose? Can you write a short description of the business activity? For example: "driving to the client office to discuss a proposal," or "going to the bank to deposit business receipts." If you can show a business purpose, in writing, you can deduct expenses.
3. Can the specific expense be deducted fully, or does the IRS impose limits? Most business expenses are completely deductible, but some are limited. For example, entertainment expenses are no longer deductible for businesses (for 2018 and after) and meal expenses have a deduction limit of 50%.
What's Deductible for International Travel?
Business expenses for international travel are considered in a special way by the IRS because international travel is longer and it means not being able to get home easily. If you can meet at least one of these three conditions, you may be able to deduct all of your international travel expenses, even if some of them are for personal use:
- The trip requires you to be out of the U.S. for at least a week and you spent less than 25% of expenses on personal purchases, or
- You had what the IRS calls "substantial control" over the itinerary, or
- You can prove that vacation wasn't a major consideration for the trip.
As you can tell, this category is complicated, so get the help of a tax professional before you try to claim international travel expenses.
IRS Explanations of Deductions for Travel
The IRS has a simple explanation of when transportation expenses are deductible (if your home is not your primary place of business). Refer to IRS Publication 587-Business Use of Your Home for more information on how to determine if your home is your principal place of business.