Under Section 162 of the Internal Revenue Code, deductions from adjusted gross income are allowed for "all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business (1)." Included in the category of trade or business expenses, traveling expenses may also be deducted if they are incurred away from home and in the pursuit of a trade or business. Travel expenses generally are travel fares (airfare, mileage), meals, and lodging.
To determine whether travel expenses are in pursuit of a trade or business, Treasury Regulation 1.162-2 states that travel expenses must be "reasonable and necessary" in the conduct of and directly attributable to the taxpayer's business (2). Travel expenses incurred primarily for personal activities are considered living expenses and are not deductible.
When travel expenses include both a business and personal component, the deductibility of the travel expenses will depend upon the facts and circumstances of each case. The most important factor to consider is the length of time spent on business and personal activities during the trip. This, in conjunction with the primary purpose of the trip, will help determine if airfare or mileage is deductible and which portion of meals and lodging are deductible. Typically, if the primary purpose of the trip is business, the travel expense would be deductible. If, however, the trip is personal and a business meeting occurs while on the trip, only that portion of any lodging or meals relating to the business meeting would be deductible as a business expense. If a taxpayer claims a deduction for travel expenses, it is the taxpayer's responsibility to maintain sufficient records to substantiate the underlying purpose for the travel. Extensive records, dates, times of meetings, etc. are a good practice to substantiate such deductions. This can be confusing and the IRS has extensive guidelines available for typical and unique circumstances, including travel outside of the US and on cruise ships. We always recommend double-checking with the IRS guidelines to make sure you are taking the deductions most appropriate for each set of circumstances.
Oftentimes, a spouse will accompany a taxpayer on a business trip. Expenses incurred that are attributable to spousal travel will only be deductible if the spouse's presence has a bona fide business purpose. Performance of services that are primarily social in nature are not deductible. The taxpayer must show there is a direct connection between expenses and the taxpayer's trade or business. The spouse must have an active role in business activities conducted during the trip for spousal travel expenses to be deductible. Again, we recommend checking individual circumstances against the IRS guidelines.
In addition to travel expenses, a taxpayer may be able to deduct the cost of attendance at conventions, conferences, or other meetings. The taxpayer may only deduct such expenses if the taxpayer is "benefiting or advancing the interests of his trade or business by such attendance." Educational meetings, conferences, and trade shows organized by an industry trade association generally satisfy this requirement.
(1) 26 U.S.C.A. §162(a)
(2) 26 C.F.R. §1.162-2 Treas. Reg.
By Mike West, CPA, Manager, firstname.lastname@example.org