The Ultimate Guide To Business Travel & Tax Deductions

Business travel; those two words evoke emotional responses ranging from dread to exhilaration. But if you’re a business owner, it’s an inevitability. And the great news is that most of the expenses incurred are considered tax deductions and add right back into your bottom line.

It’s common knowledge that travels directly related to business, such as attending conferences, traveling to acquire new business or investment property, board meetings, etc. are tax deductions.

But did you know you can pretty much turn any trip into a deductible business trip? Including exotic vacations and weekends?

It’s true. And it’s also legal, provided you follow the guidelines as outlined in this article.

Read on to learn more as we break this down for you into easily digestible bits.

First, how does the IRS define business travel when it comes to eligible tax deductions

There are four main rules that apply in order to claim tax deductions for business travel:

1. You need a valid reason why the trip will make your business money (either now or in the future)
2. You need to say overnight
3. You need to prove that it makes sense to have to travel for a business purpose
4. You need to use most of your days to conduct or plan for your business.

Be sure to keep good records, too. Receipts are a MUST when you’re seeking tax deductions for business travel.

Second, what kinds of expenses can be tax deductions?

1. Life expenses. During travel, you can deduct the cost of sustaining life—these expenses include lodging and meals. These are all eligible tax deductions on business days but not on personal days.
2. Business-related expenses. Some expenses on your travels are always business expenses, whether you incur them at home or away. Thus, if you have business expenses for printing, shipping, or communication, they are considered tax deductions, even on personal days.

It’s important to note that eligible deductions are for business days only, not personal days. And in order to make tax deductions, the majority of your days on the trip need to be business days. 

Third, how do you determine what a ‘business day’ is (so you’re eligible for tax deductions)

To count a trip day as a business day, you have to meet one of the categories in the following list, which we developed from the foreign travel regulations, case law, and IRS rulings.

1. Work over four hours. You have a workday when you spend more than half of regular business hours in the pursuit of business. Since a normal business workday in the United States is eight hours, then you must work for more than four hours. 
2. Presence-required day. If someone requires your presence at a particular place for a specific and bona fide business purpose, this counts as a business day. That “someone” could be any business associate, whether an employer, a partner, a client, or a customer. 
3. Travel day. You count as business travel days those days you spend traveling in a reasonably direct route to your business destination.

Now here comes the good stuff:

If a weekend, holiday, or other necessary standby day falls in between two business workdays, you can count these as business days. Especially if it would not be practical to return home on those days because of the time required or the expense involved.

So in other words, if both Friday and Monday are designated work days and fit the eligibility criteria above, then the entire weekend converts into business standby days. That means you get an extra two days’ worth of tax deductions for living expenses for a little over four hours of work. That’s what we call wrapping a weekend, and it’s a really good deal. 

This also applies to any day you tried to work but circumstances beyond your control prevented you from doing so, or if you travel a day or two earlier or later because the costs would yield significant savings.

Special note: if you take your family with you, those costs are typically non-deductible. However, if they are involved in the business, or have a business purpose for attending, then those expenses would also be considered eligible for tax deductions.

You can travel to exotic locations using the 7-day travel rule

We all love the 7-day travel rule. If you’re not familiar with it, it allows you to deduct 100 percent of your transportation costs to a business destination even if you only work one day and spend the rest of your time on the beach.

How is this possible?

Well, under the general rule, when you travel outside the United States away from home in pursuit of your business, you may deduct only the expenses allocable to the pursuit of business. That’s the general rule. But there are two exceptions. 

Under Section 274(c)(2)(A), the general rule does not apply to any travel outside the United States when such travel does not exceed one week. 

And second, Under Section 274(c)(2)(B), the general rule does not apply to expenses of travel outside the United States when that portion of time not attributable to the pursuit of the taxpayer’s trade or business is less than 25 percent of the total time on such travel.

So what does that mean?

It means you can use the seven-day travel rule to create a short vacation at a nice resort or exotic location without fear of losing your business expense deductions for transportation. It’s simple. It’s easy. And it’s the law.

For clarification, one week means seven consecutive days. 

You can use ordinary-and-necessary one-on-one business meetings with an outside-the-U.S. individual or company to create the seven-day transportation deduction without worrying about the rules that apply to conventions, meetings, and seminars. 

In identifying the seven consecutive days: 

• You don’t consider the day on which travel outside the United States away from home begins. 
• But you do consider the day on which such travel ends. 

Also, this tax-benefiting rule applies to travel outside the United States only. It does not apply to travel within the United States. 

But for purposes of this seven-day travel rule, the tax rules define the United States as consisting of only the 50 states and the District of Columbia. 

In conclusion

Business travel is inevitable. But with these new tips, you can turn those inevitabilities into tax deductions (and in some cases, weekend and exotic location getaways).

Also, check out this Business Mile Deduction and Travel Expense Deduction quick-reference guide for even more tips!

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 IRC Section 274(c)(1). 4/1/2021 How to Travel to Exotic Locations Using the Seven-Day Travel Rule