Restrictions on Travel Expenses Deductions on Business Taxes

By | December 5, 2015

The possibility always exists that taxpayers will attempt to treat vacation or pleasure travel as deductible business travel. To prevent such practices, the tax law contains restrictions on certain travel expenses.


Deducting Travel Expenses

For travel expenses to be deductible, a convention must be directly related to the taxpayer’s trade or business. If the proceedings of the convention are videotaped, the taxpayer must attend convention sessions to view the videotaped materials along with other participants. This requirement does not disallow deductions for costs (other than travel, meals, and entertainment) of renting or using videotaped materials related to business. The Code places stringent restrictions on the deductibility of travel expenses of the taxpayer’s spouse or dependent.15 Generally, the accompaniment by the spouse or dependent must serve a bona fide business purpose, and the expenses must be otherwise deductible.


Types of Travel to Deduct

Travel as a form of education is not deductible. If, however, the education qualifies as a deduction, the travel involved is allowed.

To be deductible, travel expenses need not be incurred in the performance of specific job functions. Travel expenses incurred in attending a professional convention are deductible by an employee if attendance is connected with services as an employee. For example, an employee of a law firm can deduct travel expenses incurred in attending a meeting of the American Bar Association.


Travel Deductions and Personal Vacation

Travel deductions have been used in the past by persons who claimed a tax deduction for what was essentially a personal vacation. As a result, several provisions have been enacted to govern deductions associated with combined business and pleasure trips. If the business/pleasure trip is from one point in the United States to another point in the United States, the transportation expenses are deductible only if the trip is primarily for business. If the trip is primarily for pleasure, no transportation expenses qualify as a deduction. Meals, lodging, and other expenses are allocated between business and personal days.


Deducting Foreign Travel Expenses

When the trip is outside the United States, special rules apply. Transportation expenses must be allocated between business and personal unless (1) the taxpayer is away from home for seven days or less or (2) less than 25 percent of the time was for personal purposes. No allocation is required if the taxpayer has no substantial control over arrangements for the trip or the desire for a vacation is not a major factor in taking the trip.

Foreign Vacations and Deducting Travel Expenses

If the trip is primarily for pleasure, no transportation charges are deductible. Days devoted to travel are considered business days. Weekends, legal holidays, and intervening days are considered business days, provided that both the preceding and succeeding days were business days.