As an agency owner or agent, you probably know about the benefits of attending annual conventions and award trips. You can gain valuable exposure, meet new clients and colleagues, and learn best practices from industry leaders.
But did you know that these events are also tax deductible?
Whether it's for business or pleasure, travel expenses can eat away at your budget. Fortunately, travel expenses are a common business deduction so there are ways to get some of those costs back from the IRS.
Here's how you can find out if your trips qualify for a deduction and what type of documents you'll need to keep track of your expenses.
What counts as business travel?
The first question you need to answer is what counts as business travel, so that you can decide whether an expense is deductible. If your journey has some personal aspects, it's possible that all or part of the trip won't be deductible.
The IRS says that a trip is primarily for business if:
- Your job responsibilities require traveling away from home (for example, if it's necessary for maintaining or securing new clients) and those duties are related to the main purpose of your trip.
- The business portion of the trip was substantial.
- The primary purpose of the trip was not personal rather than professional in nature.
What is not considered business travel?
You can only deduct travel expenses if you were traveling for business and the trip was not primarily for:
- pleasure or vacation
- commuting to and from work
IRS Rules for business travel
To qualify as a business trip that's tax-deductible, your trip must meet these requirements set by the IRS.
- Your trip must require you to sleep somewhere other than your permanent residence, such as a hotel.
- Your destination should be at least 100 miles from your home.
- You must be working regular hours while you're traveling away from home—if you're not working full-time while out of town then it's not considered an official business trip by the IRS.
- Your travel must last less than 12 months for the purpose of performing services in connection with your job.
The IRS says that in general, trips lasting less than one year are deductible; however, there are exceptions for longer trips when circumstances warrant it (for example: if your business requires an extended stay or visit at clients' offices).
List of tax deductible travel expenses
Here are some common travel-related write-offs you can take:
- Transportation
- Baggage or Shopping
- Lodging
- Dry Cleaning or Laundry
- Communication Expenses (Wi-Fi fees)
- Meals
- Car rental fees
- Parking fees
- Business gifts
Transportation, baggage, and shipping
If you’re traveling for business, you can deduct the cost of airfare, taxi fares, and even baggage or shipping costs as long as they are related to your business.
For example, if you arrive at an airport or train station and take a taxi to your hotel, that fare is fully deductible. Or if you arrive in the city where you will be conducting business, but need to take a taxi from your hotel to the work location, it’s also fully deductible.
If you rent a car when you arrive at your destination, the expense is deductible as long as the car is used exclusively for business. If you use it both for business and personal purposes, you can only deduct the portion of your expenses related to business use.
Lodging, meals, and tips while traveling
The IRS allows business travelers to deduct business-related meals and hotel costs, as long as they are reasonable considering the circumstances—not lavish or extravagant.
The IRS does limit meal deductions to 50% of either the:
- Actual cost of the meal
- Standard meal allowance
This allowance is based on the federal meals and incidental expense per diem rate that depends on where and when you travel.
Alternatively, if you do not incur any meal expenses nor claim the standard meal allowance, you can deduct $5 per day for incidental expenses. You can also deduct incidental expenses, such as:
- Fees and tips given to hotel staff
- Fees for porters and baggage carriers
Dry Cleaning and Laundry
Dry cleaning costs can be deducted for tax purposes if they are related to your work or job and are not lavish or extravagant.
You must keep records of business-related dry cleaning expenses and present them as evidence with your tax return in order to claim them as deductions. These records should include: receipts showing what items were cleaned; dates when they were cleaned; name of person who picked up or dropped off items; amount paid for each item; and name of person who performed service (if different from person who picked up or dropped off items).
Communication Expenses
You can write off the cost of Wi-Fi and cell phone services. This can be a huge deduction, especially if you frequently travel for work. For flights with paid Wi-Fi service, you can write off the charge if you are using the service for business purposes.
To deduct these costs, keep track of all your travel expenses related to your job, including travel by car or plane. You will need to keep track of receipts and mileage logs for each trip.
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