Maximizing Business Travel Deductions

Submitted by: Sarah Day - Founder, Managing Director

A little knowledge can help you to maximize your travel deductions.

There are worse things than determining permissible travel deductions, but after navigating tax guidelines, you may be hard pressed to think of any. However, no matter what country your business calls home —the more you know about travel allowances, the more cash you will keep in your pocket, and the less likely you will be to run afoul of the tax man.

Business or pleasure?
Tax codes and the type and amount of travel deductions businesses can take vary from country to country, but one crucial question remains the same: is this for business, or pleasure? An experienced accountant should be able to help you determine acceptable deductions. More information can found on the IRS page Topic 511 - Business Travel Expenses.

Transportation and lodging.
Airfare, train, or auto expenses for travel are generally deductible, although how you calculate those deductions varies. The cost of lodging while on business is also a deductible expense, and meals and entertainment, if business related, may also be deductible.

Meals.
In the U.S., meals are deductible up to 50% and only if your trip is overnight or long enough that you need to “stop for sleep or rest to properly perform your duties.” Sorry, a nap in your car does not count. You can use a standard meal allowance instead, but the IRS outlines acceptable per diem meal rates in publications such as Publication 1542, Per Diem Rates. If your business is located in the U.K., cheers — you may be able to deduct 100%.

All business, no play.
If your trip is entirely for business, expenses are usually fully deductible. For instance, in the U.S. if your travel takes you out of the country for the sole purpose of business and the entire time is spent on business
activities, then airfare and accommodations are fully deductible, and the allowable meal percentage can be taken. Again, look for exceptions. In the U.S. there are four “exceptions” which may bring your business trip under the category of “considered entirely for business:”

1. You have no substantial control
2. Are outside the U.S. for more than a week
3. Spend less than 25% of time on personal activities
4. Vacation was not a major consideration

Mostly business with a mix of vacation.
What if your trip is primarily for business, but you’ve decided to take some vacation time? If that’s the case, you must allocate your expenses. If primarily for business, your travel expenses must be allocated on a day-to-day basis between personal and business days. Rules vary by country and situation, but if you spent 10 out of 15 days on business, then you may only be allowed a 10/15ths deduction on round-trip airfare.

It Pays to Coordinate Out of Town Meetings with Several Clients
When allocating deductible business expenses, it’s worthwhile to ask what counts as a business day. In the U.S. business days include days spent traveling to and from your business destination. Use a reasonably direct route and eliminate expenses for personal side trips and activities.

Days you are required to be at a particular place for a particular purpose (i.e., for a meeting or consulting services in your customer’s office) are business days, even if you only spend two or three hours on business activity and spend the remainder on personal activities.

Weekends and holidays may also be considered business days if they fall in between business activities. If you have business activities scheduled in the same area on Friday and the following Monday, Saturday and Sunday may count as business days, so airfare (and possibly lodging) might be fully deductible. As always, be sure to consult with your accountant about allowable deductions.

Sarah Day is the founder and managing director of Day One Business Services, a general management consultancy for small to medium sized businesses. Every day Sarah helps guide small enterprises through the process of change - whether that be through the start up process, rapid business growth or a turnaround situation. She does this using a wealth of management experience gathered during a twenty-year career managing a variety of functions in both small businesses and large corporations.

Sarah holds a BA from Marquette University and an MBA in Marketing from the University of Minnesota. She is also an accredited executive associate of the Institute for Independent Business, a nonprofit research, training, and accreditation organization established in 1984 to give independent businesses direct access to top management advice. She continues to work with a variety of small businesses on resolving their key issues and sits on the board of a local non-profit agency.

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