One of the biggest myths about writing off travel expenses among small-business owners or contractors is that you can write off all of the expenses related to any trip that includes work. For years, many taxpayers have incorrectly (and often purposely illegally) written off vacations or other personal trips because they did some business while on the trip.
Understanding what expenses qualify for a tax deduction will help you create a business travel log or other record-keeping system to make sure you correctly claim travel deductions.
Consider also: An Overview of Itemized Deductions: Definition, How to Claim & Limitations
Who Is Eligible?
Until 2018, both contractors and employees could claim most business-related travel expenses under certain circumstances. For example, employees who traveled for their companies but were not reimbursed by their employer could deduct some of their expenses. That changed with the passage of the Tax Cut and Jobs Act of 2018.
Now, employees can't write off unreimbursed business expenses except under very limited exceptions. Contractors, sole proprietors and other small-business owners may still claim their deductions, however.
Consider also: Form 1099 Tax Deductions: 10 Top Deductions for Independent Contractors
What Expenses Qualify?
You can deduct travel-related business expenses such as airfare, car mileage, rental car, hotel, meals, tips, shuttles, wireless connections and other spending you must do for your travel. Talk to your tax advisor about whether you can write off any personal expenses such as a gym fee or taking a client to lunch. You can also visit the IRS website and read Topic No. 511 Business Travel Expenses.
Many people believe that if you travel on business, you can add vacation days and write off the entire trip because you did some business during your time there. Or, they plan week-long vacations and then attend a two-hour business seminar or meet with a client while they are on vacation and write off the entire trip. You can't do this – you can only write off the portion of your expenses that relate to the days you were doing business.
For example, if you attend a three-day seminar and stay three more days with your family or with your business partners to golf, you can only write off three days' worth of expense. You would have had the airfare expense to get to the meeting regardless of how many days you stayed, but you wouldn't have the extra hotel nights, rental car use, meals expenses, etc.
Consider also: Tax Deductions for Business Travel Expenses: What You Need to Know
Recording Your Qualifying Expenses
The IRS does not allow you to retroactively estimate business expenses, especially write-offs like mileage. For this reason, it's a good idea to bring a paper journal or notebook with you when you travel so that you can write down your expenses at the end of each day and include the date. If you are ever audited, you can then show the real-time recording of your travel-related expenses.
Make sure you include the reason for the trip, the names and contact information for any clients you met or partners you traveled with, your expenses and the reason for the meal, seminar or other expense. Get receipts, when you can, or attach copies of your bank or credit card statements to your journal for quick proof and reference if you need them.
references