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Understanding business travel deductions

Here are some tax details all business travelers should know

Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day's work and they need to sleep to meet the demands of their work while away.

Travel expenses must be ordinary and necessary. They can't be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business. There are special rules for conventions held outside North America .

Deductible travel expenses include:

Travel by airplane, train, bus or car between your home and your business destination.
Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
Shipping of baggage and sample or display material between regular and temporary work locations.
Using a personally owned car for business.
Lodging and meals .
Dry cleaning and laundry.
Business calls and communication.
Tips paid for services related to any of these expenses.
Other similar ordinary and necessary expenses related to the business travel.

Self-employed individuals or farmers with travel deductions

Those who are self-employed can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) .
Farmers can use Schedule F (Form 1040), Profit or Loss From Farming .

Travel deductions for the National Guard or military reserves

National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty .

Recordkeeping

Well-organized records make it easier to prepare a tax return. Keep records such as receipts, canceled checks and other documents that support a deduction.

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Credits and deductions
Business expenses

Can I deduct travel expenses?

If you’re self-employed or own a business , you can deduct work-related travel expenses, including vehicles, airfare, lodging, and meals. The expenses must be ordinary and necessary.

For vehicle expenses, you can choose between the standard mileage rate or the actual cost method where you track what you paid for gas and maintenance.

You can generally only claim 50% of the cost of your meals while on business-related travel away from your tax home, provided your trip requires an overnight stay. You can also deduct 50% of the cost of meals for entertaining clients (regardless of location), but due to the Tax Cuts and Jobs Act of 2017 (TCJA), you can no longer deduct entertainment expenses in tax years 2018 through 2025. In 2021 and 2022, the law allows a deduction for 100% of your cost of food and beverages that are provided by a restaurant, instead of the usual 50% deduction.

On the other hand, employees can no longer deduct out-of-pocket travel costs in tax years 2018 through 2025 per the TCJA (this does not apply to Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses). Prior to the tax rule change, employees could claim 50% of the cost of unreimbursed meals while on business-related travel away from their tax home if the trip required an overnight stay, as well as other unreimbursed job-related travel costs. These expenses were handled as a 2% miscellaneous itemized deduction.

Related Information:

Can I deduct medical mileage and travel?
Can I deduct my moving expenses?
Can I deduct rent?
Can I deduct mileage?
Can employees deduct commuting expenses like gas, mileage, fares, and tolls?

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Everything You Need to Know About the Business Travel Tax Deduction

Justin is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS. He loves helping freelancers and small business owners save on taxes. He is also an attorney and works part-time with the Keeper Tax team.

You don’t have to fly first class and stay at a fancy hotel to claim travel expense tax deductions. Conferences, worksite visits, and even a change of scenery can (sometimes) qualify as business travel.

What counts as business travel?

The IRS does have a few simple guidelines for determining what counts as business travel. Your trip has to be:

Mostly business
An “ordinary and necessary” expense
Someplace far away from your “tax home”

What counts as "mostly business"?

The IRS will measure your time away in days. If you spend more days doing business activities than not, your trip is considered "mostly business". Your travel days are counted as work days.

Special rules for traveling abroad

If you are traveling abroad for business purposes, you trip counts as " entirely for business " as long as you spend less than 25% of your time on personal activities (like vacationing). Your travel days count as work days.

So say you you head off to Zurich for nine days. You've got a seven-day run of conference talks, client meetings, and the travel it takes to get you there. You then tack on two days skiing on the nearby slopes.

Good news: Your trip still counts as "entirely for business." That's because two out of nine days is less than 25%.

What is an “ordinary and necessary” expense?

“Ordinary and necessary” means that the trip:

Makes sense given your industry, and
Was taken for the purpose of carrying out business activities

If you have a choice between two conferences — one in your hometown, and one in London — the British one wouldn’t be an ordinary and necessary expense.

What is your tax home?

A taxpayer can deduct travel expenses anytime you are traveling away from home but depending on where you work the IRS definition of “home” can get complicated.

Your tax home is often — but not always — where you live with your family (what the IRS calls your "family home"). When it comes to defining it, there are two factors to consider:

What's your main place of business, and
How large is your tax home

What's your main place of business?

If your main place of business is somewhere other than your family home, your tax home will be the former — where you work, not where your family lives.

For example, say you:

Live with your family in Chicago, but
Work in Milwaukee during the week (where you stay in hotels and eat in restaurants)

Then your tax home is Milwaukee. That's your main place of business, even if you travel back to your family home every weekend.

How large is your tax home?

In most cases, your tax home is the entire city or general area where your main place of business is located.

The “entire city” is easy to define but “general area” gets a bit tricker. For example, if you live in a rural area, then your general area may span several counties during a regular work week.

Rules for business travel

Want to check if your trip is tax-deductible? Make sure it follows these rules set by the IRS.

1. Your trip should take you away from your home base

A good rule of thumb is 100 miles. That’s about a two hour drive, or any kind of plane ride. To be able to claim all the possible travel deductions, your trip should require you to sleep somewhere that isn’t your home.

2. You should be working regular hours

In general, that means eight hours a day of work-related activity.

It’s fine to take personal time in the evenings, and you can still take weekends off. But you can’t take a half-hour call from Disneyland and call it a business trip.

Here's an example. Let’s say you’re a real estate agent living in Chicago. You travel to an industry conference in Las Vegas. You go to the conference during the day, go out in the evenings, and then stay the weekend. That’s a business trip!

3. The trip should last less than a year

Once you’ve been somewhere for over a year, you’re essentially living there. However, traveling for six months at a time is fine!

For example, say you’re a freelancer on Upwork, living in Seattle. You go down to stay with your sister in San Diego for the winter to expand your client network, and you work regular hours while you’re there. That counts as business travel.

What about digital nomads?

With the rise of remote-first workplaces, many freelancers choose to take their work with them as they travel the globe. There are a couple of requirements these expats have to meet if they want to write off travel costs.

Requirement #1: A tax home

Digital nomads have to be able to claim a particular foreign city as a tax home if they want to write off any travel expenses. You don't have to be there all the time — but it should be your professional home base when you're abroad.

For example, say you've rent a room or a studio apartment in Prague for the year. You regularly call clients and finish projects from there. You still travel a lot, for both work and play. But Prague is your tax home, so you can write off travel expenses.

Requirement #2: Some work-related reason for traveling

As long as you've got a tax home and some work-related reason for traveling, these excursion count as business trips. Plausible reasons include meeting with local clients, or attending a local conference and then extending your stay.

However, if you’re a freelance software developer working from Thailand because you like the weather, that unfortunately doesn't count as business travel.

The travel expenses you can write off

As a rule of thumb, all travel-related expenses on a business trip are tax-deductible. You can also claim meals while traveling, but be careful with entertainment expenses (like going out for drinks!).

Here are some common travel-related write-offs you can take.

🛫 All transportation

Any transportation costs are a travel tax deduction. This includes traveling by airplane, train, bus, or car. Baggage fees are deductible, and so are Uber rides to and from the airport.

Just remember: if a client is comping your airfare, or if you booked your ticket with frequent flier miles, then it isn't deductible since your cost was $0.

If you rent a car to go on a business trip, that rental is tax-deductible. If you drive your own vehicle, you can either take actual costs or use the standard mileage deduction. There's more info on that in our guide to deducting car expenses .

Hotels, motels, Airbnb stays, sublets on Craigslist, even reimbursing a friend for crashing on their couch: all of these are tax-deductible lodging expenses.

🥡 Meals while traveling

If your trip has you staying overnight — or even crashing somewhere for a few hours before you can head back — you can write off food expenses. Grabbing a burger alone or a coffee at your airport terminal counts! Even groceries and takeout are tax-deductible.

One important thing to keep in mind: You can usually deduct 50% of your meal costs. For 2021 and 2022, meals you get at restaurants are 100% tax-deductible. Go to the grocery store, though, and you’re limited to the usual 50%.

{upsell_block}

🌐 Wi-Fi and communications

Wi-Fi — on a plane or at your hotel — is completely deductible when you’re traveling for work. This also goes for other communication expenses, like hotspots and international calls.

If you need to ship things as part of your trip — think conference booth materials or extra clothes — those expenses are also tax-deductible.

👔 Dry cleaning

Need to look your best on the trip? You can write off related expenses, like laundry charges.

{write_off_block}

Travel expenses you can't deduct

Some travel costs may seem like no-brainers, but they're not actually tax-deductible. Here are a couple of common ones to watch our for.

The cost of bringing your child or spouse

If you bring your child or spouse on a business trip, your travel expense deductions get a little trickier. In general, the cost of bring other people on a business trip is considered personal expense — which means it's not deductible.

You can only deduct travel expenses if your child or spouse:

Is an employee,
Has a bona fide business purpose for traveling with you, and
Would otherwise be allowed to deduct the travel expense on their own

Some hotel bill charges

Staying in a hotel may be required for travel purposes. That's why the room charge and taxes are deductible.

Some additional charges, though, won't qualify. Here are some examples of fees that aren't tax-deductible:

Gym or fitness center fees
Movie rental fees
Game rental fees

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Where to claim travel expenses when filing your taxes

If you are self-employed, you will claim all your income tax deduction on the Schedule C. This is part of the Form 1040 that self-employed people complete ever year.

What happens if your business deductions are disallowed?

If the IRS challenges your business deduction and they are disallowed, there are potential penalties. This can happen if:

The deduction was not legitimate and shouldn't have been claimed in the first place, or
The deduction was legitimate, but you don't have the documentation to support it

When does the penalty come into play?

The 20% penalty is not automatic. It only applies if it allowed you to pay substantially less taxes than you normally would. In most cases, the IRS considers “substantially less” to mean you paid at least 10% less.

In practice, you would only reach this 10% threshold if the IRS disqualified a significant number of your travel deductions.

How much is the penalty?

The penalty is normally 20% of the difference between what you should have paid and what you actually paid. You also have to make up the original difference.

In total, this means you will be paying 120% of your original tax obligation: your original obligation, plus 20% penalty.

Justin W. Jones, EA, JD

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Tax Deductions for Business Travelers

When you are self-employed, you generally can deduct the ordinary and necessary expenses of traveling away from home for business from your income. But before you start listing travel deductions, make sure you understand what the Internal Revenue Service (IRS) means by "home," "business," and "ordinary and necessary expenses."

Ordinary vs. necessary expenses

Business home, not home sweet home, transportation expenses on a business trip are deductible, fees for getting around are deductible, lodging, meals and tips are deductible.

Key Takeaways

Typically, you can deduct travel expenses if they are ordinary (common and accepted in your industry) and necessary (helpful and appropriate for your business).
You can deduct business travel expenses when you are away from both your home and the location of your main place of business (tax home).
Deductible expenses include transportation, baggage fees, car rentals, taxis and shuttles, lodging, tips, and fees.
You can also deduct 50% of either the actual cost of meals or the standard meal allowance, which is based on the federal meals and incidental expense per diem rate.

The IRS defines expense ordinary and necessary expenses this way:

An expense is ordinary if it is common and accepted in your industry
An expense is necessary if it is helpful and appropriate for your business

You can claim business travel expenses when you're away from home but "home" doesn't always mean where your family lives. You also have a tax home—the city where your main place of business is located—which may not be the same as the location of your family home.

For example, if you live in Petaluma, California but your permanent work location is in San Jose where you stay in hotels and eat out during the work week, you typically can't deduct your expenses in San Jose or your transportation home on weekends.

In this situation San Jose is your tax home , so no deductions are permitted for ordinary and necessary expenses there.
Your trips to your home in Petaluma are not mandated by business.

Go by plane, train or bus—the actual cost of the ticket to ride is deductible, as well as any baggage fees. If you have to pay top dollar for a last-minute flight, the high-priced ticket is a business expense, but if you use frequent-flyer miles for a free ticket, the deduction is zero.

If you decide to rent a car to go on a business trip, the car rental is deductible. If you drive your own vehicle, you can usually take actual costs or the IRS standard mileage rate. For 2023 the rate is 65.5 cents per mile. You also can add tolls and parking costs onto your deduction. This amount increases to 67 cents per mile for 2024.

TurboTax Tip: Even if you use the federal meals and incidental expense per diem rates to calculate your deductions, be sure to keep receipts from all your meals and incidental expenses.

Fares for taxis or shuttles can be deducted as business travel expenses. For example, you can deduct the fare or other costs to go to:

Airport or train station
Hotel from the airport or train station
Between your hotel and the work location
Between clients in the area

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 the rental used for business.

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.

You would have to eat if you were home, so this might explain why the IRS limits 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.

Generally, you can deduct 50% of the cost of meals. Alternatively, if you do not incur any meal expenses nor claim the standard meal allowance, you can deduct the amount of $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

But don't forget to keep track of the actual costs.

Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service . Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you. Backed by our Full Service Guarantee . You can also file taxes on your own with TurboTax Premium . We’ll search over 500 deductions and credits so you don’t miss a thing.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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Determining Tax Deductions for Travel Expenses + List of Deductions

Published August 15, 2023

Published Aug 15, 2023

WRITTEN BY: Tim Yoder, Ph.D., CPA

This article is part of a larger series on Accounting Software .

1. Determine Your Trip Meets the Requirements of a Business Trip
2. Check the List of Business Expenses That Qualify for Deductions
3. (For Those Mixing Business & Personal Travel): Allocate Expenses

Bottom Line

The IRS considers deductible travel expenses to be any ordinary and necessary expenses you incur while traveling away from home on business. To get tax deductions for travel expenses, the trip must have a business purpose and be temporary (less than one year) and you must be away from your tax home for a length of time that exceeds your usual work day or be away overnight to get sleep to fulfill the demands of your job while away.

Key Takeaways

A qualifying business trip must take you away from home overnight long enough to require rest.
Most expenses incurred during a qualifying business trip are deductible, including meals on days off.
Partnerships, limited liability companies (LLCs), and corporations can directly pay or reimburse employees for business travel expenses and deduct them from their business returns.
Self-employed business owners will deduct their travel expenses on Schedule C, while farmers will use Schedule F.
Purely personal expenses on business trips, such as sightseeing, are nondeductible.

Step 1: Determine Your Trip Meets the Requirements of a Business Trip

A business trip for tax purposes is one that meets the following criteria:

There must be a business purposes for the travel
You are required to be away from your tax home
The trip lasts overnight or a period long enough to require rest
The trip is temporary

Business Purpose

Your trip must be an ordinary and necessary part of conducting your business for your expenses to be deductible. Below are some reasons you may decide to travel for business:

Meeting with clients or customers: If you travel overnight to meet with clients or customers for business purposes, such as negotiating contracts, discussing projects, or providing consultations.
Attending business conferences or seminars: If you travel to attend conferences, seminars, or trade shows that are relevant to your business activities, including acquiring new industry knowledge or networking with other professionals.
Training or professional developmen t : If you travel to attend training programs, workshops, or courses directly related to your business or profession.
Conducting in-person meetings or negotiations: If you need to travel to have face-to-face meetings or negotiations with business partners, suppliers, or other stakeholders.

Your tax home is not your residence but rather your principal place of business activity including the entire city or general location of your business. So, your business trip cannot be in the general vicinity of your principal place of business for you to be away from home.

Amount of time you spend at each location
Degree of business activity in each area
Relative significance of the financial return from each area
No regular place of business: If, by the nature of the work, there is no regular or principal place of business, then your tax home will be the place where you regularly live and where you travel to different job sites to perform your service.

For example, a self-employed repair person may not have a regular place of business because they spend each workday at a different customer’s location.

Overnight Stay

Overnight stays for travel purposes do not specifically mean staying from evening to the next morning. Instead, overnight means that the trip is longer than a typical day’s work and long enough for you to require rest. Resting in your car is generally not enough, but if you have to get a hotel room, then the trip will qualify as overnight regardless of when you sleep.

Transportation vs travel expenses: Local transportation at your tax home can be deductible without an overnight stay—if there is a business reason for the transportation, such as driving from your office to visit a client. On a tangent, when you travel overnight, your transportation is deductible, and so are things like lodging, meals, and incidental expenses.

Temporary Travel

For purposes of business travel, a temporary stay is one that is expected to last for less than one year. Open-ended trips are not temporary.

However, say you initially anticipate that your trip will last less than one year, but it later becomes apparent that it will last more than one year. The trip is a deductible business trip up until the point in time it becomes apparent it will last more than one year.

The IRS will also consider a series of assignments to the same location, all for short periods, that together cover a long period to be an indefinite assignment. Any expenses you incur from this type of trip will not be deductible.

Step 2: Check the List of Business Expenses That Qualify for Deductions

Your travel expenses must be business-related—unless an exception applies—to qualify for a deduction. However, if you incur expenses that are purely for personal pleasure, they are nondeductible.

Here is a list of business travel expenses that can be deducted.

Round-trip Transportation To-and-From the Destination

Transportation for a round trip to and from your temporary work location is deductible—and it could be anything that gets you to the location, including via your personal car. If you use your personal car, your costs are calculated using either the actual expenses or the standard mileage rate .

In addition, you can deduct additional round trips to return to home when you are not working.

However, the deduction for the additional round trips is limited to the cost you would have incurred if you stayed at the temporary location. Those costs could include meals and lodging.

The business purpose of the meals is your business trip and are thus deductible—even if you eat alone.
Meals on days off qualify.
Travel to and from meals is deductible—even on your days off.
The meals do not have to have a specific business purpose, such as meeting with a client.
For longer trips, lodging can include monthly rentals.
If you return home on your days off but keep the lodging at your travel location, then the lodging is still deductible if it is ordinary and necessary. For instance, the monthly rent of an apartment at your travel location would be deductible even if you return home on the weekends.

Transportation at the Destination

Once you arrive at your destination, you may need additional transportation to get around town—and these costs are deductible. The only exception would be if you travel to the destination for a purely personal reason like sightseeing on your day off.

Incidentals

Incidental expenses are minor expenditures associated with business travel. You can deduct the actual cost of any one of the following expenses:

Shipping of baggage and sample or display material between your regular and temporary work locations
Business seminar and registration fees
Dry cleaning and laundry
Business calls include business communications by fax machine and other communication devices
Tips you pay for services related to any of these expenses
Parking, tolls, and fees
Any other similar ordinary and necessary expenses related to your business travel

Step 3 (For Those Mixing Business & Personal Travel): Allocate Expenses

When trips are both business and personal, the allocation of expenses varies based on the primary purpose of the trip. Determining the primary purpose of your journey requires you to evaluate the time spent on business vs personal activities.

Primarily Business Domestic Trips

If your trip is primarily for business purposes, then the round-trip transportation is 100% deductible and does not need to be allocated to the personal portion of your trip. However, all other expenses, like lodging and meals, must be allocated to personal expenses for days where there was no business reason for staying.

For example, if your seminar ends on Friday and you stay until Sunday, then the lodging and meals for Saturday and Sunday are nondeductible.

Primarily Personal Domestic Trips

If the primary purpose of your trip is personal, then none of the round-trip expenses are deductible. However, you can deduct the business portion of meals, lodging, and local transportation that was incurred for a business purpose.

Let’s say you stay a couple of days after your family vacation to meet with a client. The lodging and meals for those extra days are deductible.

Business Foreign Trips

The allocation of travel expenses on foreign trips is slightly different from the rules above. Round-trip transportation for foreign trips must be allocated to business and personal based on the number of business vs personal days on the trip. This is different from the “all or nothing” rule for the cost of domestic round-trip travel.

If your spouse joins you on a business trip, you usually cannot deduct any of their expenses. However, if your spouse’s trip satisfies a business purpose, then expenses must be otherwise deductible by the spouse.

Generally, for the travel costs of a spouse, dependent, or any other person to be tax-deductible, they must work for the business or be a co-owner.

Frequently Asked Questions (FAQs)

Are travel expenses tax deductible for business.

Yes, roundtrip travel is 100% tax deductible as long as the primary purpose of the trip is business. Once at your destination, expenses must be allocated between business and personal. However, all meals are deductible as long as the reason for your continued stay is business.

Can I deduct travel expenses for my employees?

Yes, you can generally deduct travel expenses for your employees as long as the expenses are ordinary and necessary, directly related to your business, and properly substantiated.

Is there a limit to the amount of travel expenses I can deduct?

Yes, there are some such as business travel on a cruise ship, where the expense is limited to $2,000 per year. Also, your expenses are limited to the non-lavish or extravagant cost of the trip, so you may want to be careful before booking a 5-star hotel.

Travel expenses are ordinary and necessary expenses you incur while you are temporarily away from home, so these expenses cannot be lavish in nature. To determine if a travel expense is deductible, it must be directly related to your trade or business.

When it comes to travel expenses, having well-organized records makes it much simpler to complete your tax return. Keep track of any records that may be used to substantiate a deduction, such as receipts, canceled checks, and other documentation.

About the Author

Find Timothy On LinkedIn

Tim Yoder, Ph.D., CPA

Tim worked as a tax professional for BKD, LLP before returning to school and receiving his Ph.D. from Penn State. He then taught tax and accounting to undergraduate and graduate students as an assistant professor at both the University of Nebraska-Omaha and Mississippi State University. Tim is a Certified QuickBooks ProAdvisor as well as a CPA with 28 years of experience. He spent two years as the accountant at a commercial roofing company utilizing QuickBooks Desktop to compile financials, job cost, and run payroll. Tim has spent the past 4 years writing and reviewing content for Fit Small Business on accounting software, taxation, and bookkeeping.

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Building Your Business
Business Taxes

7 Rules You Should Know About Deducting Business Travel Expenses

What Is Your "Tax Home"?

Charges on Your Hotel Bill

The 50% rule for meals, the cost of bringing a spouse, friend or employee.

Using Per Diems To Calculate Employee Travel Costs

Combined Business/Personal Trips

International business travel.

The Cost of a Cruise (Within Limits)

Frequently Asked Questions (FAQs)

Helde Benser / Getty Images

The IRS has a specific definition for business travel when it comes to determining whether these expenses are tax deductible. The agency says business travel is travel that takes you away from your tax home and is "substantially longer than an ordinary day's work." It requires that you sleep or rest while you're away from home, and that you do so. The travel must be "temporary." This means it can't last a year or more.

Key Takeaways

You can deduct expenses that take you away from your tax home for a period of time that would require you to spend the night.
Your tax home is the city or area where your regular place of business is located.
You’re limited to 50% of the cost of your meals.
Your trip must be entirely business-related for costs to be deductible, but special rules apply if you travel outside the U.S.

What Is Your "Tax Home"?

Your tax home is a concept set by the IRS to help determine whether a trip is tax deductible. It's defined by the IRS as the entire city or general area where your regular place of business is located. It's not necessarily the area where you live.

Your tax home can be used to determine whether your business travel expenses are deductible after you've determined where it's located. You can probably count your expenses during travel as business deductions if you have to leave your tax home overnight or if you otherwise need time to rest and sleep while you're away.

Check with a tax professional to make sure you're accurately identifying the location of your tax home.

Charges for your room and associated tax are deductible, as are laundry expenses and charges for phone calls or for use of a fax machine. Tips are deductible as well. But additional personal charges, such as gym fees or fees for movies or games aren't deductible.

You can deduct the cost of meals while you're traveling, but entertainment expenses are no longer deductible and you can't deduct "lavish or extravagant" meals.

Meal costs are deductible at 50%. The 50% limit also applies to taxes and tips. You can use either your actual costs or a standard meal allowance to take a meal cost deduction, as long as it doesn't exceed the 50% limit.

The cost of bringing a spouse, child, or anyone else along on a business trip is considered a personal expense and isn't deductible. But you may be able to deduct travel expenses for the individual if:

The person is an employee
They have a bona fide business purpose for traveling with you
They would otherwise be allowed to deduct travel expenses

You may be able to deduct the cost of a companion's travel if you can prove that the other person is employed by the business and is performing substantial business-related tasks while on the trip. This may include taking minutes at meetings or meeting with business clients.

Using Per Diems To Calculate Employee Travel Costs

The term "per diem" means "per day." Per diems are amounts that are considered reasonable for daily meals and miscellaneous expenses while traveling.

Per diem rates are set for U.S. and overseas travel, and the rates differ depending on the area. They're higher in larger U.S. cities than for sections of the country outside larger metropolitan areas. Companies can set their own per diem rates, but most businesses use the rates set by the U.S. government.

Per diem reimbursements aren't taxable unless they're greater than the maximum rate set by the General Service Administration. The excess is taxable to the employee.

If you don't spend all your time on business activities during an international trip, you can only deduct the business portion of getting to and from the destination. You must allocate costs between business and personal activities.

Your trip must be entirely business-related for you to take deductions for travel costs if you remain in the U.S., but some "incidental" personal time is okay. It would be incidental to the main purpose of your trip if you travel to Dallas for business and you spend an evening with family in the area while you're there.

But attempting to turn a personal trip into a business trip won't work unless the trip is substantially for business purposes. The IRS indicates that “the scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip."

The rules are different if part or all of your trip takes you outside the U.S. Your international travel may be considered business-related if you were outside the U.S. for more than a week and less than 25% of the time was spent on personal activities.

You can deduct the costs of your entire trip if it takes you outside the U.S. and you spend the entire time on business activities, but you must have "substantial control" over the itinerary. An employee traveling with you wouldn't have control over the trip, but you would as the business owner would.

The trip may be considered entirely for business if you spend less than 25% of the time on personal activities if your trip takes you outside the U.S. for more than a week.

You can only deduct the business portion of getting to and from the destination if you don't spend all your time on business activities during an international trip. You must allocate costs between your business and personal activities.

The Cost of a Cruise (Within Limits)

The cost of a cruise may be deductible up to the specified limit determined by the IRS, which is $2,000 per year as of 2022. You must be able to show that the cruise was directly related to a business event, such as a business meeting or board of directors meeting.

The IRS imposes specific additional strict requirements for deducting cruise travel as a business expense.

How do you write off business travel expenses?

Business travel expenses are entered on Schedule C if you're self-employed . The schedule is filed along with your Form 1040 tax return. It lists all your business income, then you can subtract the cost of your business travel and other business deductions you qualify for to arrive at your taxable income.

What are standard business travel expenses?

Standard business travel expenses include lodging, food, transportation costs , shipping of baggage and/or work items, laundry and dry cleaning, communication costs, and tips. But numerous rules apply so check with a tax professional before you claim them.

The Bottom Line

These tax deduction regulations are complicated, and there are many qualifications and exceptions. Consult with your tax and legal professionals before taking actions that could affect your business.

IRS. " Topic No. 511: Business Travel Expenses ."

IRS. " Publication 463 (2021), Travel, Gift, and Car Expenses ."

IRS. " Here’s What Taxpayers Need To Know About Business-Related Travel Deductions ."

How to Deduct Travel Expenses (with Examples)

Reviewed by

November 3, 2022

This article is Tax Professional approved

Good news: most of the regular costs of business travel are tax deductible.

Even better news: as long as the trip is primarily for business, you can tack on a few vacation days and still deduct the trip from your taxes (in good conscience).

I am the text that will be copied.

Even though we advise against exploiting this deduction, we do want you to understand how to leverage the process to save on your taxes, and get some R&R while you’re at it.

Follow the steps in this guide to exactly what qualifies as a travel expense, and how to not cross the line.

The travel needs to qualify as a “business trip”

Unfortunately, you can’t just jump on the next plane to the Bahamas and write the trip off as one giant business expense. To write off travel expenses, the IRS requires that the primary purpose of the trip needs to be for business purposes.

Here’s how to make sure your travel qualifies as a business trip.

1. You need to leave your tax home

Your tax home is the locale where your business is based. Traveling for work isn’t technically a “business trip” until you leave your tax home for longer than a normal work day, with the intention of doing business in another location.

2. Your trip must consist “mostly” of business

The IRS measures your time away in days. For a getaway to qualify as a business trip, you need to spend the majority of your trip doing business.

For example, say you go away for a week (seven days). You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as business trip.

But if you spend three days meeting with clients, and four days on the beach? That’s a vacation. Luckily, the days that you travel to and from your location are counted as work days.

3. The trip needs to be an “ordinary and necessary” expense

“Ordinary and necessary ” is a term used by the IRS to designate expenses that are “ordinary” for a business, given the industry it’s in, and “necessary” for the sake of carrying out business activities.

If there are two virtually identical conferences taking place—one in Honolulu, the other in your hometown—you can’t write off an all-expense-paid trip to Hawaii.

Likewise, if you need to rent a car to get around, you’ll have trouble writing off the cost of a Range Rover if a Toyota Camry will get you there just as fast.

What qualifies as “ordinary and necessary” can seem like a gray area at times, and you may be tempted to fudge it. Our advice: err on the side of caution. if the IRS chooses to investigate and discovers you’ve claimed an expense that wasn’t necessary for conducting business, you could face serious penalties .

4. You need to plan the trip in advance

You can’t show up at Universal Studios , hand out business cards to everyone you meet in line for the roller coaster, call it “networking,” and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance.

Before your trip, plan where you’ll be each day, when, and outline who you’ll spend it with. Document your plans in writing before you leave. If possible, email a copy to someone so it gets a timestamp. This helps prove that there was professional intent behind your trip.

The rules are different when you travel outside the United States

Business travel rules are slightly relaxed when you travel abroad.

If you travel outside the USA for more than a week (seven consecutive days, not counting the day you depart the United States):

You must spend at least 75% of your time outside of the country conducting business for the entire getaway to qualify as a business trip.

If you travel outside the USA for more than a week, but spend less than 75% of your time doing business, you can still deduct travel costs proportional to how much time you do spend working during the trip.

For example, say you go on an eight-day international trip. If you spend at least six days conducting business, you can deduct the entire cost of the trip as a business expense—because 6 is equivalent to 75% of your time away, which, remember, is the minimum you must spend on business in order for the entire trip to qualify as a deductible business expense.

But if you only spend four days out of the eight-day trip conducting business—or just 50% of your time away—you would only be able to deduct 50% of the cost of your travel expenses, because the trip no longer qualifies as entirely for business.

List of travel expenses

Here are some examples of business travel deductions you can claim:

Plane, train, and bus tickets between your home and your business destination
Baggage fees
Laundry and dry cleaning during your trip
Rental car costs
Hotel and Airbnb costs
50% of eligible business meals
50% of meals while traveling to and from your destination

On a business trip, you can deduct 100% of the cost of travel to your destination, whether that’s a plane, train, or bus ticket. If you rent a car to get there, and to get around, that cost is deductible, too.

The cost of your lodging is tax deductible. You can also potentially deduct the cost of lodging on the days when you’re not conducting business, but it depends on how you schedule your trip. The trick is to wedge “vacation days” in between work days.

Here’s a sample itinerary to explain how this works:

Thursday: Fly to Durham, NC. Friday: Meet with clients. Saturday: Intermediate line dancing lessons. Sunday: Advanced line dancing lessons. Monday: Meet with clients. Tuesday: Fly home.

Thursday and Tuesday are travel days (remember: travel days on business trips count as work days). And Friday and Monday, you’ll be conducting business.

It wouldn’t make sense to fly home for the weekend (your non-work days), only to fly back into Durham for your business meetings on Monday morning.

So, since you’re technically staying in Durham on Saturday and Sunday, between the days when you’ll be conducting business, the total cost of your lodging on the trip is tax deductible, even if you aren’t actually doing any work on the weekend.

It’s not your fault that your client meetings are happening in Durham—the unofficial line dancing capital of America .

Meals and entertainment during your stay

Even on a business trip, you can only deduct a portion of the meal and entertainment expenses that specifically facilitate business. So, if you’re in Louisiana closing a deal over some alligator nuggets, you can write off 50% of the bill.

Just make sure you make a note on the receipt, or in your expense-tracking app , about the nature of the meeting you conducted—who you met with, when, and what you discussed.

On the other hand, if you’re sampling the local cuisine and there’s no clear business justification for doing so, you’ll have to pay for the meal out of your own pocket.

Meals and entertainment while you travel

While you are traveling to the destination where you’re doing business, the meals you eat along the way can be deducted by 50% as business expenses.

This could be your chance to sample local delicacies and write them off on your tax return. Just make sure your tastes aren’t too extravagant. Just like any deductible business expense, the meals must remain “ordinary and necessary” for conducting business.

How Bench can help

Surprised at the kinds of expenses that are tax-deductible? Travel expenses are just one of many unexpected deductible costs that can reduce your tax bill. But with messy or incomplete financials, you can miss these tax saving expenses and end up with a bigger bill than necessary.

Enter Bench, America’s largest bookkeeping service. With a Bench subscription, your team of bookkeepers imports every transaction from your bank, credit cards, and merchant processors, accurately categorizing each and reviewing for hidden tax deductions. We provide you with complete and up-to-date bookkeeping, guaranteeing that you won’t miss a single opportunity to save.

Want to talk taxes with a professional? With a premium subscription, you get access to unlimited, on-demand consultations with our tax professionals. They can help you identify deductions, find unexpected opportunities for savings, and ensure you’re paying the smallest possible tax bill. Learn more .

Bringing friends & family on a business trip

Don’t feel like spending the vacation portion of your business trip all alone? While you can’t directly deduct the expense of bringing friends and family on business trips, some costs can be offset indirectly.

Driving to your destination

Have three or four empty seats in your car? Feel free to fill them. As long as you’re traveling for business, and renting a vehicle is a “necessary and ordinary” expense, you can still deduct your business mileage or car rental costs even when others join you for the ride.

One exception: If you incur extra mileage or “unnecessary” rental costs because you bring your family along for the ride, the expense is no longer deductible because it isn’t “necessary or ordinary.”

For example, let’s say you had to rent an extra large van to bring your children on a business trip. If you wouldn’t have needed to rent the same vehicle to travel alone, the expense of the extra large van no longer qualifies as a business deduction.

Renting a place to stay

Similar to the driving expense, you can only deduct lodging equivalent to what you would use if you were travelling alone.

However, there is some flexibility. If you pay for lodging to accommodate you and your family, you can deduct the portion of lodging costs that is equivalent to what you would pay only for yourself .

For example, let’s say a hotel room for one person costs $100, but a hotel room that can accommodate your family costs $150. You can rent the $150 option and deduct $100 of the cost as a business expense—because $100 is how much you’d be paying if you were staying there alone.

This deduction has the potential to save you a lot of money on accommodation for your family. Just make sure you hold on to receipts and records that state the prices of different rooms, in case you need to justify the expense to the IRS

Heads up. When it comes to AirBnB, the lines get blurry. It’s easy to compare the cost of a hotel room with one bed to a hotel room with two beds. But when you’re comparing significantly different lodgings, with different owners—a pool house versus a condo, for example—it becomes hard to justify deductions. Sticking to “traditional” lodging like hotels and motels may help you avoid scrutiny during an audit. And when in doubt: ask your tax advisor.

So your trip is technically a vacation? You can still claim any business-related expenses

The moment your getaway crosses the line from “business trip” to “vacation” (e.g. you spend more days toasting your buns than closing deals) you can no longer deduct business travel expenses.

Generally, a “vacation” is:

A trip where you don’t spend the majority of your days doing business
A business trip you can’t back up with correct documentation

However, you can still deduct regular business-related expenses if you happen to conduct business while you’re on vacay.

For example, say you visit Portland for fun, and one of your clients also lives in that city. You have a lunch meeting with your client while you’re in town. Because the lunch is business related, you can write off 50% of the cost of the meal, the same way you would any other business meal and entertainment expense . Just make sure you keep the receipt.

Meanwhile, the other “vacation” related expenses that made it possible to meet with this client in person—plane tickets to Portland, vehicle rental so you could drive around the city—cannot be deducted; the trip is still a vacation.

If your business travel is with your own vehicle

There are two ways to deduct business travel expenses when you’re using your own vehicle.

Actual expenses method
Standard mileage rate method

Actual expenses is where you total up the actual cost associated with using your vehicle (gas, insurance, new tires, parking fees, parking tickets while visiting a client etc.) and multiply it by the percentage of time you used it for business. If it was 50% for business during the tax year, you’d multiply your total car costs by 50%, and that’d be the amount you deduct.

Standard mileage is where you keep track of the business miles you drove during the tax year, and then you claim the standard mileage rate .

The cost of breaking the rules

Don’t bother trying to claim a business trip unless you have the paperwork to back it up. Use an app like Expensify to track business expenditure (especially when you travel for work) and master the art of small business recordkeeping .

If you claim eligible write offs and maintain proper documentation, you should have all of the records you need to justify your deductions during a tax audit.

Speaking of which, if your business is flagged to be audited, the IRS will make it a goal to notify you by mail as soon as possible after your filing. Usually, this is within two years of the date for which you’ve filed. However, the IRS reserves the right to go as far back as six years.

Tax penalties for disallowed business expense deductions

If you’re caught claiming a deduction you don’t qualify for, which helped you pay substantially less income tax than you should have, you’ll be penalized. In this case, “substantially less” means the equivalent of a difference of 10% of what you should have paid, or $5,000—whichever amount is higher.

The penalty is typically 20% of the difference between what you should have paid and what you actually paid in income tax. This is on top of making up the difference.

Ultimately, you’re paying back 120% of what you cheated off the IRS.

If you’re slightly confused at this point, don’t stress. Here’s an example to show you how this works:

Suppose you would normally pay $30,000 income tax. But because of a deduction you claimed, you only pay $29,000 income tax.

If the IRS determines that the deduction you claimed is illegitimate, you’ll have to pay the IRS $1200. That’s $1000 to make up the difference, and $200 for the penalty.

Form 8275 can help you avoid tax penalties

If you think a tax deduction may be challenged by the IRS, there’s a way you can file it while avoiding any chance of being penalized.

File Form 8275 along with your tax return. This form gives you the chance to highlight and explain the deduction in detail.

In the event you’re audited and the deduction you’ve listed on Form 8275 turns out to be illegitimate, you’ll still have to pay the difference to make up for what you should have paid in income tax—but you’ll be saved the 20% penalty.

Unfortunately, filing Form 8275 doesn’t reduce your chances of being audited.

Where to claim travel expenses

If you’re self-employed, you’ll claim travel expenses on Schedule C , which is part of Form 1040.

When it comes to taking advantage of the tax write-offs we’ve discussed in this article—or any tax write-offs, for that matter—the support of a professional bookkeeping team and a trusted CPA is essential.

Accurate financial statements will help you understand cash flow and track deductible expenses. And beyond filing your taxes, a CPA can spot deductions you may have overlooked, and represent you during a tax audit.

Learn more about how to find, hire, and work with an accountant . And when you’re ready to outsource your bookkeeping, try Bench .

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I have a question about self-employed tax deductions. What self-employed vehicle expenses am I eligible to deduct?

To deduct vehicle expenses, you can use standard mileage or actual expenses. For either method, keep a log of the miles you drive for your business. Both methods allow self-employed tax deductions for tolls and parking fees.

If you use the standard mileage rate, you can only deduct the mileage at a standard rate. For 2023, the rate is $0.655. You cannot deduct self-employed vehicle expenses, including:

Actual vehicle expenses
Depreciation
Lease payments
Maintenance
Vehicle registration fees

If you use actual vehicle expenses, you can’t deduct mileage. Instead, you can deduct:

Registration fees
Garage rental

If you use your car for both business and personal use, you must prorate your expenses. To learn more about self-employed vehicle expenses, see Publication 463: Travel, Entertainment, Gift, and Car Expenses at www.irs.gov.

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What Travel Expenses Are Deductible for the Self-Employed?

As you grow your business, you'll often have to travel out of town for work purposes. But, we frequently get asked, "What travel expenses are deductible?" The IRS has some strict rules about this so let's go over what you can and can't write off at tax time.

Deductions when you travel out of town for business

If your trip is for business, almost are of your business travel expenses are deductible. Let's separate these into two broad categories: Business expenses at your destination and transportation costs.

Business travel expenses

There are a variety of expenses you incur when you travel for business. These are all deductible. The list below includes the following but isn't limited to:

Hotels or lodging
Transportation at destination (taxi, Uber, public transportation)
Computer rental fees
Tips you pay on any of the other costs

You're human, so you have to eat and drink. The IRS recognizes this but has also seen people try to abuse the meal deduction in the past. Also, your meals at home aren't deductible. Because of that, you can deduct 50 percent of your meals and beverages on business trips . Often, your meals during business trips can be with other people. It's common to lay the groundwork for a deal or to get a deal over the line while out eating. These food costs can also be deducted at 50 percent. Remember, you must discuss business with one or more business associates either before, during or after this entertainment expense. The days of the three-martini "business" lunch are over. These entertainment expenses must include actual business discussions. These don't have to lead to direct deals, though. It's not just for clients or potential clients, too. You can deduct half the costs of a business meal with suppliers, employees, agents, partners or anyone you're likely to meet for business reasons.

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Business travel and transportation expenses

If you spend more than half your time on business activities while on a trip, you can deduct 100 percent of your transportation costs. That could be the cost of flights or train tickets. Like with other business expenses , you can only deduct travel expenses that are "ordinary and necessary business-related expenses." It also says that extravagant expenses aren't allowed to be deducted. There's a bit of subjectivity in those words. You can deduct the costs of first-class tickets but know this will likely raise red flags with the IRS. Be prepared to justify the business reasons for this type of airfare. One justification could be that this was the only flight you could get to a particular location by a specific time. Of course, don't forget about deducting your mileage when you're out of town for business .

Mixing business with pleasure

If you plan it properly, you may be able to combine some personal fun with your business trip and still receive some tax relief. The key is that business-related actions consume more than half of your time. Example : Jill, a consultant from Phoenix, travels to Chicago for five days to work with a new client. She decides to take the weekend to go sightseeing. She takes in a Cubs game, goes on an architecture tour and catches up with some old friends at Restaurant Row. Because more than half her time is spent on work, she can write off the cost of her flights. She can also deduct the portion of lodging related to work and 50 percent of the costs of the meals related to her consulting job. She cannot deduct the costs of accommodation for the weekend or her personal entertainment.

Business trips out of the country

The above rules apply if you travel within the United State, but there are some slightly different rules for foreign trips. If you travel outside the United States for no more than seven consecutive days, you can deduct 100 percent of your transportation expenses if you spend part of the time on business. It doesn't have to be a majority of the time, just some of your time. You can also deduct the business expenses on those days you do work. The IRS isn‚Äôt trying to subsidize your vacation to the Amalfi Coast, though. Once you hit that week threshold, the requirements for work go up. If you spend more than 75 percent of your time on business at the foreign destination, you can deduct your airfare (or other transportation) and other business-related expenses including lodging. If you spend more than half your time but less than 75 percent of your time on work, you can only deduct the business percentage of your costs. This includes transportation, lodging and others costs you incur. If you spend less than 51 percent of your time on work while on a foreign trip that lasts for more than seven consecutive days, you cannot deduct any of your costs.

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Self-employed

Tax Write Offs For Self-Employed: Tax Deductions To Reduce Self-Employment Tax

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Maximizing Savings: Essential Tax Write-Offs for Self-Employed Tax Filers

Antonio Del Cueto, CPA

April 12, 2024

Being your own boss comes with freedom, but tax season can feel anything but free. The good news? The IRS offers a wealth of deductions specifically for self-employed individuals. By strategically claiming these write-offs, you can significantly reduce your taxable income and keep more of your hard-earned money.

In fact, according to the Freelancers Union, an estimated 57 million Americans freelanced in 2022 , highlighting the growing number of self-employed individuals who can benefit from tax-saving strategies. This article will help you navigate the world of self-employment deductions, maximizing your tax return and minimizing your tax burden.

Understanding Tax Write-Offs

Tax write-offs , or tax deductions, are expenses you can subtract from your taxable income, lowering the amount you owe in taxes. Think of it as reducing the size of the pie from which the IRS gets a slice. The more deductions you claim, the smaller your taxable income becomes, potentially putting you in a lower tax bracket and saving you money.

How can you optimize self-employed tax deductions?

Utilizing business expenses for tax deductions.

Tax deductions can significantly decrease your tax bill. As a self-employed individual, you can deduct expenses related to your business, such as business travel, car expenses, and business insurance.

You can deduct expenses incurred for business use by utilizing the actual expense method. Keep track of all business miles and itemize deductions on your tax return to lower your tax liability and maximize your tax write-offs.

You can also deduct insurance premiums, including health and business insurance. Expenses like home office and business-related car expenses can also be tax-deductible. By maintaining detailed records of business-related expenses, you can claim the maximum tax deductions at tax time.

Maximizing Write-Offs for Tax Savings

As a small business owner, maximizing write-offs for tax savings is crucial for reducing your tax rate and increasing your tax refund. By taking advantage of tax deductions for freelancers and self-employed tax deductions , you can lower your taxable self-employment income and ultimately pay a smaller tax bill to the IRS. Make sure to keep track of all deductible business expenses, such as equipment for your business or vehicle for business for tax purposes. One of the most valuable write-offs for a small business owner is the home office expense deduction. If you run your business from your home and use a portion of it exclusively for business purposes, you can deduct the business portion of expenses like mortgage interest, property taxes, and utilities on your tax filing. Also, you can deduct self-employed health insurance premiums to further reduce your taxable income. Under the Tax Cuts and Jobs Act, self-employed individuals can now take advantage of a new tax deduction for business and personal use of their homes. This deduction allows for a portion of their social security tax to be exempt from taxes, resulting in additional savings on their income tax bills. By staying informed on the latest rules and regulations surrounding self-employed tax deductions, you can make strategic decisions to minimize your tax burden and keep more of your hard-earned money in your pocket.

How does qualified business income impact tax liabilities?

Exploring the qualified business income deduction.

Exploring the qualified business income deduction can lead to potential tax savings for business owners. By taking advantage of this deduction, eligible businesses can reduce their taxable income by a percentage of their qualified business income. Understanding how to classify income and expenses as a business expense properly is crucial in maximizing this deduction.

One key consideration is whether certain expenses qualify as tax or business expenses. Determining which expenses can be deducted as business expenses can significantly impact the amount of the deduction. Consulting with a tax professional can help ensure that all eligible expenses are properly accounted for.

By properly documenting and categorizing expenses as tax as a business expense, businesses can potentially lower their taxable income and take advantage of the full benefits of the Qualified Business Income Deduction. This deduction can be a valuable tool for business owners looking to minimize their tax liability and maximize their profitability.

Understanding Business Tax Deductions for Self-Employed Individuals

When it comes to being self-employed, it is important to understand the various tax deductions available to you. These deductions are based on your tax situation and can help you save money in the long run. One of the most significant deductions for self-employed individuals is the self-employment tax, which is a business expense that can be deducted when you file your tax return. The self-employment tax rate is 15.3, and you can deduct half of the self-employment tax you pay as a business expense. Another important deduction for self-employed individuals is the self-employed health insurance deduction. This deduction allows you to deduct the cost of health insurance premiums that you pay for yourself, your tax home, and your dependents. Moreover, many other expenses are tax deductible for contractors and other self-employed individuals, so it is important to keep track of all expenses used during the tax year to maximize your self-employment tax deductions and tax write-offs.

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At Taxfyle , we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you.

Get started with Taxfyle today , and see how finances can be simplified.

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Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.

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How to Claim Business Travel When You’re Self-Employed

Posted on Published: 17th October 2018 - Last updated: 24th January 2024

Categories Self Employment Tax

Claiming for business travel as an expense on your tax return is a handy way to reduce your tax bill. However, the HMRC rules surrounding what you can and can’t claim are very strict. That’s because they want to keep things fair across everyone in the self-employed community.

In this guide, you’ll find out what travel expenses you can claim on your tax return along with examples to help you understand how the rules work.

1.1 what is a normal business commute, 2.1 what is an irregular journey, 2.2 dual purpose trips, 2.3 travel to a permanent place of work, 3. claiming for overseas business travel, 4. claiming for overnight stays, 5. how to claim for business travel in your own vehicle, 6. keeping a record of your self-employed travel expenses, 7. how to claim travel expenses on your tax return, 1. what counts as business travel when you’re self-employed.

You can claim for business travel outside of your normal business commute against your taxes, also known as irregular travel. That includes times like when you see a client, supplier & other one-off trips.

A normal business commute means your usual travel between your home and your base of work. If you’re mainly based at home, then your home office will be your base of work so you’ll have no business commute. However, if you rent an office then that location will become your base of work. This means you cannot claim business travel between your home and work on your tax return .

For those that store tools or equipment at a location away from their home and travel to collect equipment on the way to work, then any travel between home and collecting tools is not a tax deductible expense.

2. How to Claim Business Travel When You’re Self-Employed

You can claim for business travel outside of your normal commute if you are self-employed. However, it’s only on the premise that it meets with HMRC guidelines.

For your business travel to be an allowable expense , each journey you undertake must be:

An irregular journey, outside of your normal commute;
Fully business related and not contain any element of personal travel (also known as a dual purpose trip );
Not related to a regular contract/arrangement with a client.

In general, irregular business travel for the self-employed, means travel outside of your normal commute and is tax allowable. That’s times like when you travel to a one-off client meeting, sales meeting or to meet a supplier.

A self-employed bookkeeper travels from their office to meet with a potential new client at their premises. The cost of doing so would be tax deductible.

A dual-purpose trip is one that has a personal element to it. For example, where you sight-see as part of your work trip, take your family along or even just stop to buy a pint of milk on the way home! Consequently, your entire trip could be rendered a disallowable expense .

Travel to a permanent place of work is not a tax allowable expense and this could include travel to work at a clients workplace on an ongoing basis. Travel to a temporary workplace would be tax allowable.

You could keep entirely separate receipts and expenses for the business side of your trip and book your family’s ticket separate from your own. That way if the HMRC does investigate your expense claim they wouldn’t be able to see that you took your family with you.

If your business travel includes an overnight stay, then you can claim the cost of this as part of your travel. You can do this along with food and drink you have had to pay for as part of your irregular journey. You can claim for the following:

The cost of your travel to the location;
Accommodation for your overnight stay;
A reasonable amount for an evening meal and breakfast;

Just like with business travel, the rules for what you can and can’t claim on your tax return when it comes to food are quite strict. Read this guide to claiming for food when you’re self-employed to help you decide what is an allowable business expense.

Whilst the amounts you spend on taxis, train fares and flights are easy to identify, if you use your own car for business purposes you’ll need to decide which is the most tax efficient way to claim for using your car for work reasons. This will most likely depend on how much business travel you do.

The main ways you can claim for using your car for reasons is to:

Claim for business mileage at the set rate by HMRC;
Buy a car through your business as a sole trader , with for cash or a lease;

Just like any other business expenses, you need to keep receipts and invoices to support any business travel you are claiming on your tax return. For things like hotels, Uber and flights this is straight-forward because you’ll probably be emailed any receipts for the things you buy.

If you are claiming for business mileage, then you’ll need to keep a record of the miles you have travelled, you also need the date and reason. You can find out how to download a business mileage expense claim form here.

You need to claim the cost of tax-deductible business travel in the self-employment section of your tax return. If your business turnover is less than £85,000 for 2021/2022, you’ll have the option to fill in the simplified version of this part of the tax return. Therefore, you only need to enter your total expenses. You need to include your business travel claim in the figure you enter alongside your other allowable business expenses.

If your business turnover is more than £85,000, you need to enter a breakdown of your expenses in the boxes set out by HMRC . Here, you should include your business travel in car, van and travel expenses.

Whatever your business turnover , you should keep a note of what you are claiming for and how you worked it out as part of your business records . This is in case of an HMRC investigation and they ask for evidence of what you are claiming for to check you’ve paid the right amount of self-employed tax .

When it comes to claiming expenses, always use your judgement when it comes to deciding what you deduct against your taxes. Incorrect claims can result in penalties . And, as always, if you aren’t sure, seeks the advice of a professional.

Can I Buy a Car Through my Business as a Sole Trader?
Are Training Costs Tax Deductible?

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What Are Travel Expenses?

Understanding travel expenses, the bottom line.

Deductions & Credits
Tax Deductions

Travel Expenses Definition and Tax Deductible Categories

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

For tax purposes, travel expenses are costs associated with traveling to conduct business-related activities. Reasonable travel expenses can generally be deducted from taxable income by a company when its employees incur costs while traveling away from home specifically for business. That business can include conferences or meetings.

Key Takeaways

Travel expenses are tax-deductible only if they were incurred to conduct business-related activities.
Only ordinary and necessary travel expenses are deductible; expenses that are deemed unreasonable, lavish, or extravagant are not deductible.
The IRS considers employees to be traveling if their business obligations require them to be away from their "tax home” substantially longer than an ordinary day's work.
Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and the use of communications devices.

Travel expenses incurred while on an indefinite work assignment that lasts more than one year are not deductible for tax purposes.

The Internal Revenue Service (IRS) considers employees to be traveling if their business obligations require them to be away from their "tax home" (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.

Well-organized records—such as receipts, canceled checks, and other documents that support a deduction—can help you get reimbursed by your employer and can help your employer prepare tax returns. Examples of travel expenses can include:

Airfare and lodging for the express purpose of conducting business away from home
Transportation services such as taxis, buses, or trains to the airport or to and around the travel destination
The cost of meals and tips, dry cleaning service for clothes, and the cost of business calls during business travel
The cost of computer rental and other communications devices while on the business trip

Travel expenses do not include regular commuting costs.

Individual wage earners can no longer deduct unreimbursed business expenses. That deduction was one of many eliminated by the Tax Cuts and Jobs Act of 2017.

While many travel expenses can be deducted by businesses, those that are deemed unreasonable, lavish, or extravagant, or expenditures for personal purposes, may be excluded.

Types of Travel Expenses

Types of travel expenses can include:

Personal vehicle expenses
Taxi or rideshare expenses
Airfare, train fare, or ferry fees
Laundry and dry cleaning
Business meals
Business calls
Shipment costs for work-related materials
Some equipment rentals, such as computers or trailers

The use of a personal vehicle in conjunction with a business trip, including actual mileage, tolls, and parking fees, can be included as a travel expense. The cost of using rental vehicles can also be counted as a travel expense, though only for the business-use portion of the trip. For instance, if in the course of a business trip, you visited a family member or acquaintance, the cost of driving from the hotel to visit them would not qualify for travel expense deductions .

The IRS allows other types of ordinary and necessary expenses to be treated as related to business travel for deduction purposes. Such expenses can include transport to and from a business meal, the hiring of a public stenographer, payment for computer rental fees related to the trip, and the shipment of luggage and display materials used for business presentations.

Travel expenses can also include operating and maintaining a house trailer as part of the business trip.

Can I Deduct My Business Travel Expenses?

Business travel expenses can no longer be deducted by individuals.

If you are self-employed or operate your own business, you can deduct those "ordinary and necessary" business expenses from your return.

If you work for a company and are reimbursed for the costs of your business travel , your employer will deduct those costs at tax time.

Do I Need Receipts for Travel Expenses?

Yes. Whether you're an employee claiming reimbursement from an employer or a business owner claiming a tax deduction, you need to prepare to prove your expenditures. Keep a running log of your expenses and file away the receipts as backup.

What Are Reasonable Travel Expenses?

Reasonable travel expenses, from the viewpoint of an employer or the IRS, would include transportation to and from the business destination, accommodation costs, and meal costs. Certainly, business supplies and equipment necessary to do the job away from home are reasonable. Taxis or Ubers taken during the business trip are reasonable.

Unreasonable is a judgment call. The boss or the IRS might well frown upon a bill for a hotel suite instead of a room, or a sports car rental instead of a sedan.

Individual taxpayers need no longer fret over recordkeeping for unreimbursed travel expenses. They're no longer tax deductible by individuals, at least until 2025 when the provisions in the latest tax reform package are due to expire or be extended.

If you are self-employed or own your own business, you should keep records of your business travel expenses so that you can deduct them properly.

Internal Revenue Service. " Topic No. 511, Business Travel Expenses ."

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 13.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Page 7.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 6-7, 13-14.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 4.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Pages 5, 7.

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Business and self-employed
Business tax

Expenses if you're self-employed

Car, van and travel expenses.

You can claim allowable business expenses for:

vehicle insurance
repairs and servicing
hire charges
vehicle licence fees
breakdown cover
train, bus, air and taxi fares
hotel rooms
meals on overnight business trips

You cannot claim for:

non-business driving or travel costs
travel between home and work

You may be able to calculate your car, van or motorcycle expenses using a flat rate (known as simplified expenses) for mileage instead of the actual costs of buying and running your vehicle.

Buying vehicles

If you use traditional accounting and buy a vehicle for your business, you can claim this as a capital allowance .

If you use cash basis accounting and buy a car for your business, claim this as a capital allowance as long as you’re not using simplified expenses .

For all other types of vehicle, claim them as allowable expenses.

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Tips For Independent Travel Agents On Tax Filing

T here are several tax filing considerations that you as an independent travel agency need to keep in mind. You are considered self-employed, which means you must handle your own taxes, which is one of the most crucial things to keep in mind since, in contrast to conventional workers, you are.

In order to maximize their tax savings and file their taxes, independent contractors like travel agents may run into problems. When selling hotel reservations, vacation packages, and other travel-related goods, many travel agents operate on a project-basis and make money. Because of the possibility of seasonal employment, revenue fluctuations may sometimes occur. The 1099 tax rate and form (and/or a w2 template if you find yourself working as an employee with any business), quarterly tax calculator, and self-employment tax calculator are thus essential tools that may assist you in making wise tax choices.

For independent travel agencies paying taxes, consider these suggestions:

1. Learn the tax regulations

In order to file taxes as an independent travel agency, you must first get familiar with the tax regulations that relate to your industry. Read the IRS publication on small enterprises and self-employed persons to learn how to record your income, deductions, and credits.

For independent travel brokers, it’s important to remember the following tax regulations:

-Unless you request an extension, you must submit your yearly tax return by April 15th and pay any taxes that are required.

– You are required to record all revenue you get from your travel agency, including 1099-style payments.

– Self-employment taxes, also known as Social Security and Medicare taxes, are due by self-employed people and now represent 15.3% of their net income. These taxes cover both the employer and employee components of Social Security and Medicare.

2. Recurring business costs should be monitored

Being a self-employed travel agent has several advantages, including the ability to deduct numerous company expenditures from taxable income, which may reduce your tax burden. You may write off certain costs, such as:

– Costs associated with running an office, such as rent, utilities, and supplies.

– Costs associated with traveling, such as lodging and rental vehicles.

– Marketing expenditures, including web hosting and advertising.

– The cost of your phone, camera, and computer equipment.

Maintaining precise records of all your company expenditures is crucial to ensure you don’t overlook any deductible costs. This is especially important because these agencies are exempt from some taxes, and you can learn more about the tour operators margin scheme if you live in Britain, for example. You may maintain a record of your expenditures in a spreadsheet or notepad, or you can use accounting software to manage your costs automatically.

3. Calculate the tax rate on your 1099 form

You get 1099 forms from your customers when you work as a self-employed travel agent, which implies that taxes are not deducted from your salary. Taxes on your income must be paid by you instead. Using a 1099 tax rate calculator is a fantastic idea to make sure you are allocating the right amount of money for taxes.

Based on your income and deductible costs, the calculator will help you establish your tax obligation. In order to assist you avoid underpayment penalties, it will also figure out the projected tax owed for each quarter.

4. Calculate the self-employment taxes

The self-employment taxes, which include Social Security and Medicare taxes, must be paid by self-employed people, as was previously noted. Use a self-employment tax calculator to get a rough idea of your taxes for being self-employed.

With the help of the tool, you can determine how much money you’ll need to put aside for self-employment taxes and an estimate of your tax liabilities depending on your net income. Remember that the self-employment tax rate is presently 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare.

5. Maintain your tax payments on time each quarter

Quarterly anticipated tax payments are necessary if you anticipate owing more than $1,000 in taxes for the whole year. Penalties and interest fees may be assessed if these payments are not made.

Using a quarterly tax calculator to calculate your estimated tax bill for each quarter is crucial to ensuring that you pay your taxes on time and avoiding underpayment penalties. When the time comes to submit your taxes, this will help you prevent any surprises.

For independent travel brokers, handling taxes may be a huge hassle. But you can reduce the stress and increase your tax savings by being informed with tax laws, keeping track of your company spending, utilizing a 1099 tax rate calculator, calculating self-employment taxes, finding tax deductions and staying on top of quarterly tax payments. You can make sure you are remaining in compliance and choosing wisely when it comes to taxes for your travel company by heeding the advice in this guide.

The post Tips For Independent Travel Agents On Tax Filing appeared first on Mom and More .

There are several tax filing considerations that you as an independent travel agency need to keep in mind. You are considered self-employed, which means you must handle your own taxes, which is one of the most crucial things to keep in mind since, in contrast to conventional workers, you are. In order to maximize their […]

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Business expenses

This page discusses the more common expenses you might incur to earn income from your activities. Incur means you paid or will pay the expense.

The amount you can deduct in a given year for any expense depends if it is considered a current year expense or capital expense. For more information, go to Current or capital expenses and Basic information about capital cost allowance (CCA) .

You cannot claim expenses you incur to buy capital property. However, as a rule, you can deduct any reasonable current expense you incur to earn income. The deductible expenses include any GST/HST you incur on these expenses minus the amount of any input tax credit claimed.

Also, since you cannot deduct personal expenses, enter only the business part of expenses on Form T2125 , T2042 or T2121.

When you claim the GST/HST you paid or owe on your business expenses as an input tax credit, reduce the amounts of the business expenses by the amount of the input tax credit. Do this when the GST/HST for which you are claiming the input tax credit was paid or became payable, whichever is earlier.

Similarly, subtract any other rebate, grant or assistance from the expense to which it applies. Enter the net figure on the appropriate line of your form. Any such assistance you claim for the purchase of depreciable property used in your business will affect your claim for capital cost allowance .

Note for farmers

If you cannot apply the rebate, grant or assistance you received to reduce a particular expense, or to reduce an asset's capital cost, include the total on line 9570 , "Rebates," on Form T2042 . For more information, go to Grants, subsidies and rebates .

Note for business and professional

If you cannot apply the rebate, grant or assistance you received to reduce a particular expense, or to reduce an asset's capital cost, include the total in Part 3C at line 8230 , "Other income," on Form T2125 . For more information, go to Grants, subsidies and rebates .

The following may be considered when determining operating expenses:

advertising
allowance on eligible capital property
business start-up costs
business tax, fees, licenses and dues
business-use-of-home expenses
capital cost allowance
delivery, freight and express
fuel costs (except for motor vehicles)
fees, penalties or bonuses paid for a loan
fees deductible over five years
fees deductible in the year incurred
interest deductible on property no longer used for business purposes
interest on loans made against insurance policies
capitalizing interest
interest related to workspace in your home
legal, accounting and other professional fees
maintenance and repairs
management and administration fees
long-haul truck drivers
extra food and beverages consumed by self-employed
motor vehicle expenses
office expenses
other business expenses
prepaid expenses
property taxes
salaries, wages and benefits (including employer's contributions)
telephone and utilities

Advertising

You can deduct expenses for advertising, including advertising in Canadian newspapers and on Canadian television and radio stations. You can also include any amount you paid as a finder's fee.

To claim the expenses, you must meet certain Canadian content or Canadian ownership requirements. These requirements do not apply if you advertise on foreign websites.

Restrictions apply to the amount of the expense you can deduct for advertising in a periodical:

You can deduct all the expense if your advertising is directed at a Canadian market and the original editorial content in the issue is 80% or more of the issue's total non-advertising content.
You can deduct 50% of the expense if your advertising in a periodical is directed at a Canadian market and the original editorial content in the issue is less than 80% of the issue's total non-advertising content.

You cannot deduct expenses for advertising directed mainly at a Canadian market when you advertise with a foreign broadcaster.

Allowance on eligible capital property

As of January 1, 2017 , the eligible capital property (ECP) system was replaced with the new capital cost allowance (CCA) Class 14.1 with transitional rules. For more information, go to Class 14.1 (5%) .

You can generally deduct an amount for a bad debt if:

you had determined that an account receivable is a bad debt in the year
you had already included the receivable in income

Business start-up costs

To deduct a business expense, you need to have carried on the business in the fiscal period in which the expense was incurred. You have to be clear about the date your business started.

Where a taxpayer proposes to undertake a business and makes some initial expenditures with that purpose in mind, it is necessary to establish whether the expenditure preceded the start of the business or whether the business had in fact begun and there were expenses incurred during preliminary steps leading to the start of normal operations.

Consequently, the date when the business can be said to have commenced must be known.

Determining what you can claim as a start-up expense can be difficult. For more information, go to Interpretation Bulletin IT-364, Commencement of Business Operations , or see Guide RC4022, General Information for GST/HST Registrants .

Business tax, fees, licences and dues

You can deduct any annual licence fees and some business taxes you incur to run your business.

You can also deduct annual dues or fees to keep your membership in a trade or commercial association, as well as subscriptions to publications.

You cannot deduct club membership dues (including initiation fees) if the main purpose of the club is dining, recreation or sporting activities.

Delivery, freight and express

You can deduct the cost of delivery, freight and express incurred in the year that relates to your business.

Fuel costs (except for motor vehicles)

You can deduct the cost of fuel (including gasoline, diesel and propane), motor oil and lubricants used in your business.

For information about claiming the fuel used in your motor vehicle, go to Motor vehicle expenses .

The cost of fuel related to business use of workspace in your home has to be claimed as business-use-of-home expenses .

You can deduct all ordinary commercial insurance premiums you incur on any buildings, machinery and equipment you use in your business.

The insurance costs related to your motor vehicle have to be claimed as motor vehicle expenses .

The insurance costs related to business use of workspace in your home have to be claimed as business-use-of-home expenses .

In most cases, you cannot deduct your life insurance premiums. However, if you use your life insurance policy as collateral for a loan related to your business, including a fishing business, you may be able to deduct a limited part of the premiums you paid. For more information, go to Interpretation Bulletin IT-309, Premiums on Life Insurance Used as Collateral .

Insurance expenses for fishers

Enter the premiums you paid to insure your fishing boat and equipment.

In most cases, you cannot deduct the amounts you paid to insure personal property such as your home or car. However, if you used the property for personal use and for your fishing business, you can deduct the business part of these costs. For more information, go to Motor vehicle expenses (not including CCA) and Business-use-of-home expenses .

Interest and bank charges

You can deduct interest incurred on money borrowed for business purposes or to acquire property for business purposes. However, there are limits on:

the interest you can deduct on money you borrow to buy a passenger vehicle or a zero-emission passenger vehicle. For more information, go to Motor vehicle expenses .
the amount of interest you can deduct for vacant land. Usually, you can only deduct interest up to the amount of income from the land that remains after you deduct all other expenses. You cannot use any remaining amounts of interest to create or increase a loss, and you cannot deduct them from other sources of income.
the interest you paid on any real estate mortgage you had to earn fishing income. You can deduct the interest, but you cannot deduct the principal part of loan or mortgage payments. Do not deduct interest on money you borrowed for personal purposes or to pay overdue income taxes.

Fees, penalties or bonuses paid for a loan

You can deduct the fee you pay to reduce the interest rate on your loan. You can also deduct any penalty or bonus a financial institution charges you to pay off your loan before it is due. Treat the fee, penalty or bonus as prepaid interest and deduct it over the remaining original term of your loan.

For example, if the term of your loan is five years and in the third year you pay a fee to reduce your interest rate, treat this fee as a prepaid expense and deduct it over the remaining term of the loan. For more information, see Prepaid expenses .

Fees deductible over five years

You can deduct certain fees you incur when you get a loan to buy or improve your business property. These fees include:

application, appraisal, processing and insurance fees
loan guarantee fees
loan brokerage and finder's fees
legal fees related to financing

You deduct these fees over a period of five years, regardless of the term of your loan. Deduct 20% (100% divided by five years equals 20%) in the current tax year and 20% in each of the next four years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.

However, if you repay the loan before the end of the five-year period, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.

Fees deductible in the year incurred

If you incur standby charges, guarantee fees, service fees or any other similar fees, you may be able to deduct them in full in the year you incur them. To do so, they have to relate only to that year. For more information, go to Interpretation Bulletin IT-341, Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate and Expenses of Borrowing Money .

Interest deductible on property no longer used for business purposes

You may be able to deduct interest expenses for a property you used for business purposes, even if you have stopped using the property for such purposes because you are no longer in business. For more information, go to Income Tax Folio S3-F6-C1, Interest Deductibility .

Interest on loans made against insurance policies

You can deduct interest you paid on a loan made against an insurance policy, as long as the insurer didn't add the interest you paid to the adjusted cost base of the insurance policy. To claim the interest you paid for the year, have the insurer verify the interest before June 16 of the following year on Form T2210, Verification of Policy Loan Interest by the Insurer .

Capitalizing interest

You can choose to capitalize interest on money you borrow either:

to buy depreciable property
to buy a resource property
for exploration and development

When you choose to capitalize interest, add the interest to the cost of the property or exploration and development costs instead of deducting the interest as an expense.

Interest related to workspace in your home

The interest related to business use of workspace in your home has to be claimed as business-use-of-home expenses .

Legal, accounting and other professional fees

You can deduct the fees you incurred for external professional advice or services, including consulting fees.

You can deduct accounting and legal fees you incur to get advice and help with keeping your records. You can also deduct fees you incur for preparing and filing your income tax and GST/HST returns.

You can deduct accounting or legal fees you paid to have an objection or appeal prepared against an assessment for income tax, Canada Pension Plan or Quebec Pension Plan contributions, or employment insurance premiums. However, the full amount of these deductible fees must first be reduced by any reimbursement of these fees that you have received. Enter the difference on line 23200, Other deductions , of your income tax return ( line 23200 was line 232 before tax year 2019).

If you received a reimbursement in the tax year, for the types of fees that you deducted in a previous year, report the amount you received on line 13000, Other income , of your income tax return of the current year ( line 13000 was line 130 before tax year 2019).

You cannot deduct legal and other fees you incur to buy a capital property, such as a boat or fishing material. Instead, add these fees to the cost of the property. For more information on capital property, go to Claiming capital cost allowance (CCA) .

For more information, go to Interpretation Bulletin IT-99, Legal and Accounting Fees .

Maintenance and repairs

You can deduct the cost of labour and materials for any minor repairs or maintenance done to property you use to earn business income.

However, you cannot deduct any of the following:

the value of your own labour
the costs you incur for repairs that are capital in nature ( capital expense )
the costs you incur for repairs that have been reimbursed by your insurance company

For repairs that are capital in nature, you can claim a capital cost allowance .

You have to claim the maintenance and repairs related to business use of workspace in your home as business-use-of-home expenses .

Note for daycares

You can only deduct maintenance and repair expenses if you can prove that the day to day running of your daycare is what caused any damage and you have not received any compensation or refund from your insurer.

Management and administration fees

You can deduct management and administration fees, including bank charges, incurred to operate your business. Bank charges include those for processing payments.

Do not include :

employees' salaries, wages and benefits (including employer's contributions)

Instead, report these amounts separately.

Meals and entertainment (allowable part only)

The maximum amount you can claim for food, beverages and entertainment expenses is 50% of the lesser of the following amounts:

the amount you incurred for the expenses
an amount that is reasonable in the circumstances

These limits also apply to the cost of your meals when you travel or go to a convention, conference or similar event. However, special rules can affect your claim for meals in these cases. For more information, see Travel .

These limits do not apply if any of the following apply:

Your business regularly provides food, beverages or entertainment to customers for compensation (for example, a restaurant, hotel or motel).
You bill your client or customer for the meal and entertainment costs, and you show these costs on the bill.
You include the amount of the meal and entertainment expenses in an employee's income or would include them if the employee did not work at a remote or special work location. In addition, the amount cannot be paid or payable for a conference, convention, seminar or similar event and the special work location must be at least 30 kilometres from the closest urban centre with a population of 40,000 or more. For more information about urban centres, go to Statistics Canada's Population and Dwelling Count Highlight Tables .
You incur meal and entertainment expenses for an office party or similar event, and you invite all your employees from a particular location. The limit is six such events per year.
You incur meal and entertainment expenses for a fund-raising event that was mainly for the benefit of a registered charity.
You provide meals to an employee housed at a temporary work camp constructed or installed specifically to provide meals and accommodation to employees working at a construction site (note that the employee cannot be expected to return home daily).

Entertainment expenses include tickets and entrance fees to an entertainment or sporting event, gratuities, cover charges, and room rentals such as hospitality suites. For more information, go to Interpretation Bulletin IT-518, Food, Beverages and Entertainment Expenses .

Meals and entertainment expenses for fishers

Claim the total amount you paid for food you stocked on your boat to feed your crew when you fished offshore.

Often, inshore fishers do not stock food. Instead, they bring meals from home for their crew because the trips are short (leave home early in the morning and come back late in the afternoon). You can deduct the cost of these meals as long as the meals were a taxable benefit to your crew.

In some cases, you can deduct the cost of meals even though they were not taxable benefits. You can do this if your boat was at sea for 36 hours or more and the meals you provided for your crew were not taxable benefits. Also, if you gave meals to your sharespeople, generally the meals you provided for them are not taxable benefits because we do not consider sharespeople to be employees. The 50% rule applies to all self-employed sharespeople. However, they may be limited by the restriction noted above.

For more information about taxable benefits, see the T4130, Employers' Guide – Taxable Benefits and Allowances .

Long-haul truck drivers

Expenses for food and beverages consumed by a long-haul truck driver during an eligible travel period are deductible at 80%.

An eligible travel period is a period of at least 24 continuous hours throughout which the driver is away from the municipality and metropolitan area that he or she resides in (the residential location) and is driving a long-haul truck that transports goods to or from a location that is beyond a radius of at least 160 kilometres from the residential location.

Extra food and beverages consumed by self-employed

This information is for self-employed:

bicycle couriers
rickshaw drivers

They can deduct the cost of the extra food and beverages they must consume in a normal working day (eight hours) because of the nature of their work.

The daily flat rate that can be claimed is $23.

If you are claiming this deduction you should be prepared to provide logbooks showing the days worked and the hours worked on each of these days during the tax year. The CRA may also ask for dispatch slips or other documents to support the days worked during the tax year.

By using this flat-rate deduction, you will not be required to maintain or submit receipts for the extra meal and beverage consumed.

If you want to claim more than the flat-rate amount, the CRA will also need:

supporting receipts for all food and beverages claimed
something that clearly shows the extra amount of food and beverages required because of the nature of your work, and how this amount exceeds what the average person would consume in terms of both cost and quantity

Office expenses

You can deduct the cost of office expenses. These include small items such as:

paper clips

Office expenses do not include items such as:

calculators
filing cabinets

These are capital items.

Prepaid expenses

A prepaid expense is an expense you pay ahead of time. Under the accrual method of accounting , claim any expense you prepay in the year or years in which you get the related benefit.

Suppose your fiscal year-end is December 31, 2022 . On June 30, 2022 , you prepay the rent on your store for a full year ( July 1, 2022, to June 30, 2023 ). You can only deduct one-half of this rent as an expense in 2022. You deduct the other half as an expense in 2023.

Under the cash method of accounting , you can't deduct a prepaid expense amount (other than for inventory) relating to a tax year that is two or more years after the year the expense is paid.

However, you can deduct the part of an amount you paid in a previous year for benefits received in the current tax year. You can deduct these amount as long as you have not previously deducted them.

If you paid $600 for a three-year service contract for office equipment in 2022, you can deduct $400 in 2022. This represents the part of the expense that applies to 2022 and 2023. On your 2024 income tax return, you could then deduct the balance of $200 for the part of the prepaid lease that applies to 2024.

For more information, go to Interpretation Bulletin IT-417, Prepaid Expenses and Deferred Charges .

Property taxes

You can deduct property taxes you incurred for property used in your business. For example, you can deduct property taxes for the land and building where your business is situated.

The property tax related to business use of workspace in your home has to be claimed as business-use-of-home expenses .

You can deduct rent incurred for property used in your business. For example, you can deduct rent for the land and building where your business is situated.

The rent expense related to business use of workspace in your home has to be claimed as business-use-of-home expenses .

Salaries, wages and benefits (including employer's contributions)

Ask for a cpp/ei ruling on employment status.

If you or a person working for you is not sure of the worker's employment status (employee or self-employed), either of you can ask the CRA for a CPP / EI ruling to have the status determined and whether the employment is pensionable, insurable, or both. The ruling can also determine if the earnings are pensionable, insurable, or both. For more information, go to How to get a CPP/EI ruling .

For information on employment status, go to Canada Pension Plan and Employment Insurance Rulings and see Guide RC4110, Employee or Self-Employed

Amounts you can deduct as an employer

You can deduct gross salaries and other benefits you pay to employees.

salaries and wages such as direct wage costs or subcontracts
drawings of the owners of the business
salaries or drawings of the owners of the business since salaries or drawings paid or payable to you or your partners are not deductible

The Canada Pension Plan is for all workers, including the self-employed. Employers , employees and most self-employed individuals must contribute to the CPP . The CPP can provide basic benefits when you retire or if you become disabled. When you die, the CPP can provide benefits to your surviving spouse or common-law partner and your dependent children under 25. For more information on contribution and benefits, visit Service Canada .

Quebec workers including the self-employed are covered under the Quebec Pension Plan .

As the employer, you can deduct your part of the following amounts payable on employees' remuneration:

CPP or QPP contributions
employment insurance (EI) premiums
Provincial parental insurance plan premiums, which is an income replacement plan for residents of Quebec (visit Revenu Québec for details)
workers' compensation amounts for your employees

You report each salary by the end of February on a T4 slip, Statement of Remuneration Paid, or T4A slip, Statement of Pension, Retirement, Annuity and Other Income.

You can also deduct any premiums you pay for an employee for a sickness, an accident, a disability or an income insurance plan. For more information on these slips, see T4001, Employer's Guide – Payroll Deductions and Remittances , and go to Payroll .

You can deduct the salary you pay to your child, as long as you meet all these conditions:

you pay the salary
the work your child does is necessary for earning business, professional or fishing income
the salary is reasonable when you consider your child's age, and the amount you pay is what you would pay someone else

Keep documents to support the salary you pay your child. If you pay your child by cheque, keep the cancelled cheque. If you pay cash, have the child sign a receipt.

Instead of cash, you can pay your child with a product from your business. When you do this, claim the value of the product as an expense and add to your gross sales an amount equal to the value of the product. Your child has to include the value of the product in his or her income.

You can also deduct the salary you pay to your spouse or common-law partner . When you pay your spouse or common-law partner a salary, use the same rules that apply to paying your child.

Report the salaries you pay to your children and spouse or common-law partner on T4 slips, the same as you would for other employees. However, you cannot claim as an expense the value of board and lodging you provide to your dependent children and your spouse or common-law partner.

For more information, see Guide RC4120, Employers' Guide – Filing the T4 Slip and Summary .

You can deduct the cost of items the business used indirectly to provide goods or services (for example, drugs and medication used in a veterinary operation, or cleaning supplies used by a plumber).

Telephone and utilities

You can deduct expenses for telephone and utilities, such as gas, oil, electricity, water and cable, if you incurred the expenses to earn income.

The expenses for utilities that are related to business use of workspace in your home have to be claimed as business-use-of-home expenses .

You can deduct travel expenses you incur to earn business and professional income. Travel expenses include:

public transportation fares
hotel accommodations

In most cases, the 50% limit applies to the cost of meals, beverages and entertainment when you travel. For more information, see Meals and entertainment (allowable part only) .

The 50% limit also applies to the cost of food and beverages served and entertainment enjoyed when you travel on an airplane, train or bus, when the ticket price does not include such amounts.

Forms and publications

Form T2125, Statement of Business or Professional Activities
Form T2121, Statement of Fishing Activities
Form T2042, Statement of Farming Activities

Page details

Guide to Retirement Planning for the Self-Employed

Self-employed workers lack employer-sponsored retirement plans but have other options for tax-advantaged retirement accounts.

Self-Employed Retirement Planning

Happy young man in casual attire browsing on a digital tablet in a well-lit modern space.

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Self-employed workers commonly use individual retirement accounts as a vehicle for tax-advantaged investing.

Key Takeaways

Without access to employer-sponsored 401(k) plans, self-employed workers must pursue other strategies for retirement saving.
Small business owners often reinvest in their businesses instead of funding a retirement account, although it's possible to do both.
Preparation for boom-and-bust cycles is a key component of retirement savings strategies for self-employed workers.
Options such as a Solo 401(k), SEP IRA or SIMPLE IRA may offer higher contribution limits and more flexibility than traditional or Roth IRAs.

Retirement advice typically focuses on maximizing employer-sponsored 401(k) plans and taking advantage of a match if one is offered. That’s great advice, but it only applies to workers in traditional jobs.

When you're self-employed, there’s no human resources department to provide you with information about a 401(k) plan for retirement savings, said Lei Deng, a certified financial planner at Core Planning in St. Louis, in an email.

"Like a lot of things that were given to you, such as health insurance and life insurance coverage, the retirement plan is another area where self-employed people have to choose for themselves," she said.

Retirement Plan Options for the Self-Employed

Although employer-sponsored retirement plans and insurance options aren’t available to self-employed workers, the self-employed enjoy some advantages over their peers in traditional jobs.

Self-employed people have the flexibility to save on their own or choose from several options, said James Enriquez, a financial advisor with Ameriprise Financial Services in McAllen, Texas, in an email.

"An employee cannot choose what type of employer-sponsored plan is available at their work," Enriquez said.

"Also, many self-employed clients see their business as their retirement plan, so they tend to reinvest in their business," he added.

Some have the cash flow to simultaneously contribute to a retirement account and reinvest in their business, while others do not. Enriquez added that some self-employed business owners opt for nonqualified accounts without any tax advantages for retirement. This allows them to make early withdrawals while avoiding tax penalties .

"Everyone is different, but we try to encourage self-employed clients to diversify and accumulate some liquidity by funding a retirement account," Enriquez said.

Self-employed savers should be prepared for boom-and-bust cycles, said Asher Rogovy, chief investment officer at New York-based investment advisory firm Magnifina.

"When you work for yourself, income can be unpredictable with both droughts and windfalls," he said. "It's important to remember to invest extra in the good years to make up for the scarce ones."

Examples of retirement accounts for self-employed savers:

Read on for more about each account type.

Traditional or Roth IRA

"The choice between a traditional IRA and a Roth IRA is more a question of how investors expect tax rates to change when they retire," Rogovy said.

A traditional IRA allows tax-deferred contributions, with taxes paid upon withdrawal. A Roth IRA features after-tax contributions and allows tax-free withdrawals during retirement.

In 2024, the contribution limit for both Roth and traditional IRAs is $7,000, with an additional $1,000 allowed for savers age 50 and older.

A traditional or Roth IRA or both can be used alongside various types of self-employment retirement accounts. This strategy effectively increases the total limit for retirement contributions, Rogovy said.

Solo 401(k)

A solo 401(k), also known as an individual 401(k) or self-employed 401(k), is designed for self-employed workers or business owners with no employees other than a spouse. This plan offers higher contribution limits and investment flexibility than other retirement plans.

For 2024, investors may contribute as much as $69,000 to a solo 401(k). Workers age 50 and older may take advantage of an additional $7,500 catch-up contribution .

"A solo 401(k) can be a great tool that incorporates profit-sharing and significant contribution limits," said Robert Clements, partner at FRS Advisors in Wayne, Pennsylvania, in an email.

"The cost and administration can be a hurdle for some as you need an administrator to file annual documents and there is a cost associated with that," he said. "In addition, if you have any employees, you may be required to contribute for them as well."

Simplified Employee Pension IRA

A Simplified Employee Pension IRA, or SEP IRA, is a retirement plan tailored for self-employed individuals and small businesses. The employer makes contributions on behalf of employees, with potential tax advantages for both parties.

"Ordinary IRA accounts have low limits, but self-employment retirement accounts have much higher limits and tax benefits," Rogovy said.

According to the IRS, employer contributions to an employee’s SEP IRA cannot exceed the lesser of either 25% of the employee's compensation, or $69,000 for 2024. That’s up from $66,000 in 2023.

Savings Incentive Match Plan for Employees IRA

Another option for self-employed workers and small business owners is a Savings Incentive Match Plan for Employees, also known as a SIMPLE IRA.

This plan differs from the SEP IRA in that it allows contributions from employers and employees, while a SEP IRA allows only employer contributions.

"A Simple IRA is a nice option that is low cost to set up and maintain, has higher contribution limits than a traditional IRA and can include employees if they opt in, which may require an employer contribution on their behalf," Clements said.

In 2024, the contribution limit for a SIMPLE IRA is $16,000. That figure increased from $15,500 in 2023. Employees aged 50 or older may contribute an additional $3,500, bringing the total contribution to $19,500.

Prioritizing Retirement Savings for the Self-Employed

Because self-employment can be a roller-coaster ride, it’s crucial to prioritize savings, even during lean years.

"It's hard to prioritize saving for retirement when you're a small business owner," Deng said.

"When you're self-employed, you have to wear every hat in your business. A lot of times, saving for retirement is put on the back burner," she said.

In addition, figuring out the tax benefits of asset location is also important.

Deng had self-employed clients with most of their savings in a taxable brokerage account . "They might've missed out on tax savings as well as additional liability protection," Deng noted.

"Generally, what helps my self-employed clients to get started to save for retirement is tax savings. If it gets them to save for their future, I'm not complaining," she said.

Saving for Retirement After 50

Kate Stalter April 11, 2024

Senior man putting coins, money into a piggy bank. Saving Money after retirement, preparing for retirement. Financial education and financial literacy for seniors.

Tags: retirement , Investing for Retirement , 401(k)s , IRAs

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IMAGES

Guide to travel related work expenses
The 3 Most Common Business Travel Expenses Every Employee Should Be
FREE 11+ Sample Self Employment Forms in PDF
A Short Self-Employed Guide to Deducting Travel Expenses
Self-Employed Allowable Expenses
Tax deductible business travel expenses for self-employed and sole traders

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COMMENTS

Understanding business travel deductions
Self-employed individuals or farmers with travel deductions. Those who are self-employed can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship). Farmers can use Schedule F (Form 1040), Profit or Loss From Farming. Travel deductions for the National Guard or military reserves
Guide to Deducting Business Travel Expenses
Deducting travel expenses. Here's a list of common self-employed business travel expenses you can deduct as a taxpayer: Meal expenses (50% deductible) Lodging. Transportation costs (can include gas, airfare, car rental fees, taxis, baggage fees and other travel-related expenses) The cost of transporting supplies, such as display materials.
Guide to Business Travel Tax Deductions for the Self-Employed
What travel expenses are tax deductible for self-employed taxpayers? If you are traveling for business and your trip requires that you spend at least one night away from home, you can deduct the cost of lodging and food, plus any ordinary and necessary expenses that you paid to get the job done. This includes airfare, car rentals, rideshares ...
Can I deduct travel expenses?
If you're self-employed or own a business, you can deduct work-related travel expenses, including vehicles, airfare, lodging, and meals.The expenses must be ordinary and necessary. For vehicle expenses, you can choose between the standard mileage rate or the actual cost method where you track what you paid for gas and maintenance.. You can generally only claim 50% of the cost of your meals ...
How to Deduct Business Travel Expenses: Do's, Don'ts, Examples
A taxpayer can deduct travel expenses anytime you are traveling away from home but depending on where you work the IRS definition of "home" can get complicated. ... If you are self-employed, you will claim all your income tax deduction on the Schedule C. This is part of the Form 1040 that self-employed people complete ever year.
Deductible Business Travel Expenses for Solo Business Owners
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.
Tax Deductions for Business Travelers
When you are self-employed, you generally can deduct the ordinary and necessary expenses of traveling away from home for business from your income. But before you start listing travel deductions, make sure you understand what the Internal Revenue Service (IRS) means by "home," "business," and "ordinary and necessary expenses."
Determining Tax Deductions for Travel Expenses + List of Deductions
Self-employed business owners will deduct their travel expenses on Schedule C, while farmers will use Schedule F. Purely personal expenses on business trips, such as sightseeing, are nondeductible. Step 1: Determine Your Trip Meets the Requirements of a Business Trip
7 Rules You Should Know About Deducting Business Travel Expenses
Business travel expenses are entered on Schedule C if you're self-employed. The schedule is filed along with your Form 1040 tax return. The schedule is filed along with your Form 1040 tax return. It lists all your business income, then you can subtract the cost of your business travel and other business deductions you qualify for to arrive at ...
How to Deduct Travel Expenses (with Examples)
If you're self-employed, you'll claim travel expenses on Schedule C, which is part of Form 1040. How Bench can help. When it comes to taking advantage of the tax write-offs we've discussed in this article—or any tax write-offs, for that matter—the support of a professional bookkeeping team and a trusted CPA is essential.
Deducting Your Self-Employed Vehicle Expenses
To deduct vehicle expenses, you can use standard mileage or actual expenses. For either method, keep a log of the miles you drive for your business. Both methods allow self-employed tax deductions for tolls and parking fees. If you use the standard mileage rate, you can only deduct the mileage at a standard rate. For 2023, the rate is $0.655.
The Ultimate List of 34 Tax Deductions for Self-Employed Business
The deduction is based on how much you use your phone or internet for business use versus personal use. For example, if you use your cellphone 50% of the time for business, then you'll deduct 50% of your phone bill. If your monthly phone bill is $100, then the deductible portion is $50.
What Travel Expenses Are Deductible for the Self-Employed?
If you travel outside the United States for no more than seven consecutive days, you can deduct 100 percent of your transportation expenses if you spend part of the time on business. It doesn't have to be a majority of the time, just some of your time. You can also deduct the business expenses on those days you do work.
16 Tax Deductions and Benefits for the Self-Employed
IRS Publication 587: Business Use of Your Home (Including Use by Day-Care Providers): A document published by the Internal Revenue Service (IRS) that provides information on how taxpayers who use ...
17 common self-employed tax deductions
Discover the 17 best self-employed tax deductions for freelancers and independent contractors. Learn how these deductible expenses can reduce your tax bill. ... Other tax write-offs available to self-employed individuals are travel expense tax deductions. If you travel to visit clients or attend conferences, you may be able to deduct the cost ...
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The self-employment tax rate is 15.3, and you can deduct half of the self-employment tax you pay as a business expense. Another important deduction for self-employed individuals is the self-employed health insurance deduction. This deduction allows you to deduct the cost of health insurance premiums that you pay for yourself, your tax home, and ...
How to Claim Business Travel When You're Self-Employed
This will most likely depend on how much business travel you do. The main ways you can claim for using your car for reasons is to: Claim for business mileage at the set rate by HMRC; Buy a car through your business as a sole trader, with for cash or a lease; 6. Keeping a Record of Your Self-Employed Travel Expenses.
Travel Expenses Definition and Tax Deductible Categories
Travel expenses are costs associated with traveling for the purpose of conducting business-related activities. Travel expenses can generally be deducted by employees as non-reimbursed travel ...
Expenses if you're self-employed: Car, van and travel expenses
train, bus, air and taxi fares. hotel rooms. meals on overnight business trips. You cannot claim for: non-business driving or travel costs. fines. travel between home and work. You may be able to ...
Tips For Independent Travel Agents On Tax Filing
3. Calculate the tax rate on your 1099 form. You get 1099 forms from your customers when you work as a self-employed travel agent, which implies that taxes are not deducted from your salary.
Business expenses
The 50% rule applies to all self-employed sharespeople. However, they may be limited by the restriction noted above. For more information about taxable benefits, ... Travel. You can deduct travel expenses you incur to earn business and professional income. Travel expenses include: public transportation fares;
Guide to Retirement Planning for the Self-Employed
Examples of retirement accounts for self-employed savers: $7,000, plus $1,000 for savers age 50 and older. $69,000, plus $7,500 for savers age 50 and older. Cannot exceed the lesser of either 25% ...