Tax Deductions for Travel Expenses

October, 13 2023 by Anne Davis, EA

Most of us love to travel, and all of us love a tax break. Are there situations where travel expenses are tax deductible? Yes. In this blog, we will discuss five situations where travel expenses are deductible:

1. Travel for business as a sole proprietor;
2. Travel to care for rental property;
3. Travel as a national guard or military reservist;
4. Travel to obtain medical care; and
5. Travel to perform charitable work.

The deductibility of travel expenses incurred as an employee has been suspended for tax years 2018 through 2025. Typically, an employee is a person who receives a W-2 for the services performed.

 

Travel for Business as a Sole Proprietor

Independent contractors/sole proprietors can deduct travel expenses that are ordinary and necessary while traveling away from your tax home for business purposes. You can also deduct your travel expenses if you are on a temporary work assignment away from your tax home.

Ordinary expenses are those that are common and accepted in your trade or business. Necessary expenses are those that are helpful and appropriate for your business. Travel expenses that are lavish and extravagant cannot be deducted.

You are traveling away from home if your work requires you to be away from your tax home substantially longer than an ordinary day's work, and you need to get sleep or rest to be able to perform your work duties while away. Needed rest does not include merely napping in your car.

Tax home refers to the entire city or general area where your work is located, regardless of where your family home is located. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located. If you have no main place of business or work, your tax home is the home where you regularly live. Please see IRS Publication 463, Travel, Gift, and Car Expenses for factors used to determine tax home.

A temporary work assignment is an assignment that is expected to last for one year or less, and actually does last for one year or less. Any work assignment that is expected to last for more than one year is considered indefinite, even if it does not actually last for more than one year. Travel expenses paid in connection with an indefinite work assignment are not deductible. A work assignment is determined temporary or indefinite at the start of the work assignment.

Travel for Business Inside of the United States:

Travel inside the United States means traveling within the 50 states and the District of Columbia. If your primary purpose for traveling is business, but you extend your stay and vacation, you can deduct the cost to get to and from your business destination and any business-related expenses. Any expenses associated with the time you are vacationing are not deductible. If your trip is primarily for personal reasons, you cannot deduct the cost of your trip. However, if you conduct any business while on vacation, you can deduct expenses that are directly related to your business while on your trip. Keep in mind that directly related expenses when conducting business during a vacation do not include any portion of the round-trip travel expenses.

Travel for Business Outside of the United States:

Travel outside of the United States means travel outside of the 50 states and the District of Columbia. Unlike travel within the United States where a taxpayer may not prorate the round-trip travel expenses between business and personal, round-trip travel expenses outside of the United States may be prorated. If your travel outside of the United States is primarily for business, you will prorate the round-trip travel expenses by the number of days on business to the total number of days you are traveling. Days that are counted as business days are: (1) transportation days; (2) days your presence is required for business purposes; (3) days spent on business; and (4) certain weekends and holidays if these days fall between business days. Unfortunately, if your trip outside of the United States is primarily for personal reasons, none of the travel expenses are deductible, apart from those costs that are exclusively connected to the business conducted. For more information and examples on travel for business outside of the United States, please review Publication 463.

Deductible business travel expenses include:

1. Travel by airplane, train, bus, or car between your home and your business destination. If there is no cost to you because you used frequent travel miles or something similar, your deduction will be zero.
2. Fares for taxis or other types of transportation between:
   • The airport or train station and your hotel,
   • The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
3. Shipping of baggage and business material between your regular and temporary work locations.
4. Using your car while at your business destination. You can deduct the actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. Actual car expenses include depreciation, lease payments, maintenance, repairs, gas, oil, insurance, and vehicle registration. If you rent a car, you can deduct only the business-use portion of the expenses. For 2022, the standard mileage rate for business purposes was 58.5 cents per mile from January through June and raised to 62.5 cents from July to the end of the year. The current business standard mileage rate for 2023 is 65.5 cents per mile.
5. Lodging and non-entertainment-related meals.
6. Dry cleaning and laundry.
7. Tips you pay for services related to any of the above expenses.
8. Other similar ordinary and necessary expenses related to your business travel.
9. The cost of meals. The deduction for business meals is generally limited to 50% of the unreimbursed cost. 
10. Luxury water travel. Your deduction is limited to twice the highest federal per diem rate at the time of your travel. Luxury water travel includes ocean liners, cruise ships, or other forms of luxury transportation. The maximum you are allowed to deduct is $2,000 per year. Please see IRS publication 463 for additional information.
11. Conventions. Travel costs to attend a convention are deductible if you can show that your attendance benefits your trade or business.

You cannot deduct the travel cost for another individual, such as a spouse, dependent, or employee unless there is a bona fide business purpose. A bona fide business purpose exists if you can prove a real business purpose for the individual’s presence.

Travel for business expenses can be deducted on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) if you are self-employed, or on Schedule F (Form 1040), Profit or Loss From Farming, if you're a farmer.
 

Travel in Connection with a Rental Property

You can deduct your traveling expenses if the primary purpose of your trip is to collect rental income, or to manage, conserve, or maintain your rental property.

1. You can deduct the actual car expenses or the business standard mileage rate for an automobile.
2. You can deduct lodging.
3. Your expenses must be ordinary and necessary as opposed to lavish and extravagant.

You can’t deduct your travel expenses if the main purpose of the trip is to improve the property. Improvements are expenses that result in a betterment to your property, the restoration of your property, or that adapts your property to a new or different use. Please see IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes) for a detailed explanation.

You will report your travel expenses on Schedule E (Form 1040), Supplemental Income and Loss.
 

Travel to Serve as a Military Reservist

As a military reservist, you can deduct your unreimbursed travel expenses if you travel more than 100 miles away from home to perform services as a reservist.

You are a reservist if you are a member of the reserve component of the Armed Forces:

1. The Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve;
2. The Army National Guard of the United States;
3. The Air National Guard of the United States; or
4. The Ready Reserve Corps of the Public Health Service.

You should include all qualified unreimbursed expenses from the time you leave home until the time you return home. Deductible expenses include:

1. Mileage. The business standard mileage rate for an automobile should be used in this case. You may also deduct the cost of any parking fees, tolls, or ferry fees.
2. Meals, limited to 50% of the cost, which includes any tips, taxes, and delivery charges directly related to the meal expense.
3. Lodging.

Your deduction cannot exceed the federal per diem rates (for lodging, meals, and incidental expenses) for the city that you traveled to. You can find federal per diem rates at www.gsa.gov/portal/content/104877

Keep copies of your military orders, a contemporaneous mileage log of your car travel, receipts, invoices, and proof of payment.

You will report your travel expenses on Schedule 1 (Form 1040), Additional Income and Adjustments to Income and attach Form 2106, Employee Business Expenses.
 

Travel for Medical Care

You can deduct travel cost for amounts paid for transportation primarily for, and essential to, medical care.

Deductible expenses include:

• The costs of bus, taxi, train, plane fares, or ambulance service.
• The travel cost of the parents who must go with a child who needs medical care.
• The travel cost for a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling and is unable to travel alone. You can deduct lodging costs up to $50 for each night for each person, including for a person traveling with the person receiving the medical care. The cost of meals isn’t included in the $50 lodging.
• The travel cost to visit a mentally ill dependent if these visits are recommended as a part of treatment.
• The following car expenses:
  • You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. You can’t include depreciation, insurance, general repair, or maintenance expenses.
  • If you don't want to use your actual expenses, you can use the standard medical mileage rate. The medical mileage rate for 2022 was 18 cents per mile before July 1 and 22 cents per mile after June 30 of 2022. So far for 2023, the rate has remained at 22 cents per mile. Even when you use the standard mileage rate, you can still deduct the cost of parking fees and tolls.
  • It is important to keep a current mileage log showing the date, the address of the medical facility, and the miles driven.

Keep all receipts, invoices, and proof of payments as well as a log of your medical travel. Sadly, you cannot deduct travel that is for the general improvement of your health.

You will deduct your medical travel expenses on Schedule A (Form 1040), Itemized Deductions.
 

Charity Travel

You can deduct unreimbursed travel costs incurred while performing services as a volunteer for a qualified charitable organization. You can check to see if the charity is qualified by visiting: https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

The travel cannot contain a significant element of personal pleasure, recreation, or travel. This does not mean that you cannot find enjoyment in the volunteer work.

You can deduct travel expenses that you pay directly or indirectly. Payment is considered indirect if you make a payment to the qualified charity and the charity pays for your travel expenses.

Your volunteer duties must be substantial throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don't have any duties, you can't deduct your travel expenses.

You can deduct the travel expenses to attend a convention of a qualified charitable organization if you are a chosen representative. If the qualified charitable organization is a church, you cannot deduct the cost of travel expenses if you are attending only as a member. You can deduct the travel expenses if you are attending the church convention as a chosen representative.

Auto Expenses:
You can deduct the cost of using your car while providing services for the charitable organization. You can deduct the cost of gas and oil, or you can take the charitable standard mileage rate of 14 cents per mile, as set by the Taxpayer Relief Act of 1997. Unlike the business and medical mileage rates, which are adjusted for inflation, the charitable mileage rate can only be adjusted by Congress. You can also deduct the cost of tolls and parking. You must keep a contemporaneous mileage log showing the name of the charity, the date you drove, and the miles driven.

You will deduct your charitable travel expenses on Schedule A (Form 1040), Itemized Deductions.
 

Conclusion

Traveling expenses may be audited, so it is important that you keep all receipts, invoices, itineraries, proof of payments, and detailed travel logs. The travel logs should include the dates of the travel, the actual address of the location traveled to, and the purpose of the travel. If you use your car, keep a receipt showing the odometer reading toward the beginning of the year and the end of the year. And remember, if you are audited, you are not alone. TaxAudit has been helping people solve their tax audits for over three decades. Whether it’s the IRS or a state tax agency, receiving a notice regarding your income tax return is overwhelming. The good news is that you are not alone. We are here to help!