When you’re a self-employed entrepreneur traveling for work, keeping track of every expense is important. Why? Because business travel is tax deductible! Every dollar you spend on travel related to your business may help you legally save on taxes.
Here’s a closer look at deductible business travel expenses to help you better understand what counts, how to include business travel, and how much business travel expenses may influence your annual tax return.
When is a business trip considered deductible?
If you’re traveling specifically for business purposes, there’s a good chance your expenses are tax deductible. According to IRS rules, travel expenses must be “ordinary and necessary.” You can’t deduct “lavish or extravagant expenses” or spending on personal travel.
Examples of business travel include:
- Travel to a conference for business networking or to learn new skills that would improve your productivity, quality, or other aspects of your business. In that case, you’re likely incurring true business expenses that count for tax purposes.
- Travel to meet a client in another city to work together on a project or review work done for the client.
- If your work requires you to be in another location outside your normal work area, beyond where someone would typically commute, it may be business travel.
If you work at home and go a few miles away to have lunch and work with your laptop, that doesn’t count as business travel. Going on a vacation and working while away also doesn’t count as expenses for your small business income taxes.
You may encounter some gray areas if you take a work trip and add personal activities while away. In that case, expenses directly related to the business likely count as deductible expenses, while personal expenses don’t. Consult with a trusted tax expert, such as your Collective team, when in doubt.
Which expenses are deductible and how much can you deduct?
If spending is directly related to your business travel, such as flights, hotels, local transit, or shipping costs for business materials, you can likely include them as a business expense. Here’s a list of examples the IRS allows you to deduct:
- Airfare, train, bus, ferry, or car expenses to travel from your home to the business destination. Use of a personal car for business is deductible at a per-mile rate set by the IRS annually.
- Hotels, Airbnb charges, and other expenses directly related to your business travel.
- Local transportation expenses from an airport or train station to a hotel and transportation between the hotel and work location. Tolls may also be included on the way to or from business events or meetings. Parking fees fall into this category.
- Car rental costs when you need a car while away for business are deductible.
- Baggage fees or shipping costs for business materials, such as displays or items for a conference booth.
- Business travel meals, with limits and exceptions. Most meals are subject to a 50% limit.
- Business communications expenses. Business calls are usually made on a cell phone these days, but if you pay to use a hotel phone, it’s possible to write off.
- Tips paid directly related to allowed travel expenses.
- Additional “similar ordinary and necessary expenses” related to your business trip.
This isn’t a full list, but it includes the most common expenses you will likely incur when traveling for business activities. Dry cleaning and laundry expenses while on your trip could be included, but these are not common. Self-employed taxpayers should check with the IRS or their CPA if they don’t know whether or not to deduct an expense incurred during business trips.
Entertainment is specifically not allowed as a deduction, even if you go with a client. For example, tickets to a sporting event or museum entry wouldn’t be allowed. Business meals are usually subject to the 50% limit, even if you’re treating a colleague or client.
Breaking down deductible business travel meals
The cost of meals is tricker when understanding deductible business travel expenses. Generally, you can only deduct 50% of the cost of business-related meals. If you’re eating alone or with a business colleague or client, the 50% rule still applies.
Note: Business meals in tax year 2021 and 2022 purchased from restaurants may be 100% deductible. This exception ended for meals starting on January 1, 2023.
Deductible business travel expenses related to meals may fall into several deduction categories. Here’s an example to better break down the special rules for travel meal deductions.
Let’s say you’re at a business convention in another state. You invite a client to dinner a few miles away. You pay for a taxi, cover the meal and tip, and decide to take your client to a comedy show where food is served after dinner. Your client offers to cover an Uber back to the convention center.
- You can deduct 100% of the taxi cost for the meal, as it’s part of ordinary business travel.
- The meal and tip are subject to the 50% limit, so you can deduct half of the amount of the meal.
- The comedy show is entertainment, so you can’t deduct the price of admission.
- Food purchased at the comedy show is a business meal. You can deduct half of that cost. However, if the food is included with admission, it’s not deductible.
- You can’t deduct any of the cost of your return Uber because your client paid for the Uber ride back to the convention center. But your client can deduct 100% of the fare and tip.
If you go out to eat with a friend out of town, you probably can’t include the expense as a business meal. But if you’re on vacation and meet with a client who lives nearby and discuss business, that specific meal may be deductible even if the rest of the trip isn’t.
Business travel deductions for the use of a personal vehicle
When you take a road trip to a conference or business meeting far from your main place of business, keep track of the miles you drive. Miles are generally deductible at a flat rate per mile.
For example, if you drive 100 miles to attend a business event out of town where you stay for a few nights before returning home, drive 50 miles for business reasons while visiting, and drive 100 miles home, you would have 250 deductible business miles.
For 2023, the standard mileage rate for using your car is 65.5 cents per mile. Those miles allow you to enter a $146.25 expense, which is counted 100% toward your deductible business travel expenses.
International deductible business travel expenses
The IRS loves exceptions, so the rules you’ll encounter when traveling outside the United States differ from local travel within the U.S.
When travel is entirely for business, and you don’t add personal excursions, you can generally deduct all related travel expenses. If you travel outside the United States for more than a week and up to 25% of your time is spent on personal purposes, you can deduct your travel to and from the destination and business-related expenses while away.
Rules for international travel get complicated, so if you travel outside the country for business regularly, hiring a tax professional could be a wise decision.
Keeping receipts and records
Keep your receipts and make good notes about business expenses in case the IRS questions your expenses. Good, organized records are good for all business costs, whether or not they’re related to deductible business travel.
You can use your regular accounting and bookkeeping software for much of your business expense tracking, related to travel or otherwise. If you need help with recordkeeping while away, consider these tools:
- Expensify: Expensify helps you track expenses for businesses. It has features to track receipts, connect to business credit cards, and more.
- Concur: Concur is usually used by larger businesses to track business travel. It’s a powerful tool allowing you to bring business travel into a single dashboard to track expenses, your itinerary, and other details.
- Trabee Pocket: Trabee Pocket is a simpler travel expense app with free and paid versions available. You can track costs by trip and category, including foreign currencies.
- MileIQ: For business mileage tracking using your personal vehicle MileIQ uses your GPS and helps you classify trips by purpose.
Final word on deductible business travel expenses
Navigating the complexities of deductible business travel expenses can be challenging, especially for solo entrepreneurs who wear multiple hats in their operations. But with every trip, every meal, and every mile, there lies an opportunity to boost your financial efficiency and maximize your returns.If you need further clarification, expert advice, or a dedicated team to help manage and optimize your business expenses, reach out to Collective. We can work together to make the most of your hard-earned money and ensure you benefit from every eligible deductible business travel expense. When you write off your travel costs, whether you’re a freelancer or other small business owner, you’re on track for the best income tax results.
Eric Rosenberg is a finance, travel, and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full-time. You can connect with him at Personal Profitability or EricRosenberg.com.