What Travel Expenses You Can (and Can’t) Write Off
Figuring out travel expenses probably registers on the fun-o-meter at the same level as root canals or bathing feral cats.
Travel agents are plagued with tricky questions when it comes to travel expenses. If you have a few business meetings during a family vacation, how much of the trip can be a travel expense write off? If you specialize in Europe does that mean any and all trips to Europe are tax write offs?
Don’t you worry. Stick with us and we’ll clear up what you can and can’t write off as a travel expense. I learned a thing or two when I chatted with Jay Elstad, a CPA (Certified Public Accountant) with Riley Martin Ltd, and Rhonda Macier Lathen, a recovering accountant (my words, not hers) and current travel advisor and owner of Culinary Latitudes.
It turns out that figuring out travel expenses is a lot less intimidating when you talk to professionals. So I’m here to share their wisdom with you. Starting with HAR's beauteous tax organizer! Download it now and keep it handy while you go through the article!
This article and the HAR tax organizer will ensure you’re tracking and logging expenses thoroughly and efficiently. Will it make tracking travel expenses fun? Um, no. Sorry. I’m not that good. But I will give you the tools to help you feel more confident when it comes to travel expenses.
⭐️ HAR ARTICLE HIGHLIGHTS: ⭐️
- Travel Expenses You Can and Can’t Deduct: A Basic Overview
- Hobbyists (or Travel Dabblers)
- Cruises & Travel Expense
- The Elephant in the Room: Is a Vacation a Travel Expense
- Travel Expense Scenarios for Travel Agents
- Documenting Your Travel Expenses
- Travel Expense Tracking Tools
Travel Expenses You Can and Can’t Deduct (A Basic Overview)
You can write off any travel expenses that are necessary, reasonable and ordinary to your business operations. Below are examples of travel expenses you can (and cannot write off):
Travel Expenses You CAN Deduct
- By airplane, train, bus or car between your home and your business destination.
- Fares for taxis or other types of transportation between the airport or train station and your hotel, or the hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
- Personal car usage or car rental: You can deduct actual expenses or the standard mileage rate (¢57.5 for 2020), as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
2. Baggage or Shipping: Checking in your luggage? You can deduct that. Shipping display materials for the trade show? Go ahead and write that off too (so long as it’s between your regular and temporary work location).
3. Lodging:You can deduct any of your business-related lodging as an expense so long as it’s reasonable and necessary to your business (e.g. hotel/resort stay during a travel conference).
If you bring your sweetie/friend/kid you can only deduct lodging expense that’s reasonable for one person, for the nights/days that you worked.
4. Dry cleaning and laundry: If you have laundry or dry cleaning bills during your business travel, keep those receipts for your travel expenses.
5. Communication Expenses: (beyond your cell phone): Your cell phone will already be deducted in a different category. But if you have any peripheral communications like leasing a satellite phone in Antarctica (sweet!) for emergency business calls, you can deduct that.
6. Tips: Tips include any gratuity to pay for the services noted on this list (porter fees, room service/cleaning, cab rides etc.).
Note on cash: If you take out cash for tips (or other incidentals) from an ATM, the ATM receipt is not enough documentation. You should write down on your ATM receipt the date, location/service, amount, for which you tipped if you want to take it as a deduction.
7. Other: similar ordinary and necessary expenses related to your business travel. (e.g. use of a hotel business center, hiring an interpreter, transportation to and from hotel to business event etc.)
8. Meals:I saved meals for last because it's a little complicated. But here's what you need to know about meals:
- You can deduct 50% of total meal cost.
- Meals must be non-entertainment related. In 2018, the tax law changed, rendering entertainment expenses 100% nondeductible. So if you go to a dinner theater show with a client and the meal portion is not itemized on your theater ticket, you cannot deduct it.
- There’s two ways you can track/deduct meal expenses. You can either use a per diem or track your actual expenses. We’ll explore this soon, so stay tuned
Travel Expenses You CANNOT Deduct
Now for the less fun part: Here are examples of travel expenses you CANNOT deduct.
1. Entertainment: Entertainment is an allowable expense. Going golfing at the resort with a potential client or a BDM (business development manager) while you’re at a business conference? Too bad . . . you’re going to have to do it on your own dime.
2. Family/friends/dependents traveling with you: If you’re traveling with a friend, family member and/or dependent you cannot deduct any of their travel expenses.
If you feel like you fall under an exception to this rule—e.g. you compensate your family member/friend/dependent to fulfill necessary business activities during the trip and have the 1099 or W-2 to prove they work for you—talk to your CPA.
3. Lavish and extravagant:Lavish and extravagant expenses are not allowed by the IRS. However, they’re a little foggy on what defines lavish or extravagant saying only, “an expense isn’t considered lavish or extravagant if it’s reasonable based on facts or circumstances.”
If you think this may be a concern for you, talk to your CPA.
4. Travel that is compensated:This may seem obvious, but if your travel is comped, you cannot deduct it as an expense. For example, if you’re presenting at a conference and the event planner comps your entire hotel stay, you cannot deduct lodging.
Same also goes for using points on loyalty programs toward flight/lodging etc.
5. Personal vacations: You cannot deduct personal travel. When it comes to mixing business with leisure (I mean, do travel agents ever really stop working?), we get into serious gray area. It’s such a doozie that it gets its own section. So read on.
Hobbyists (or Travel Dabblers)
I’m not going to spend too much time talking about hobbyists. Just know that if you sell travel as a hobby, then none of your travel expenses are allowable.
How do you know if you’re a hobbyist? The IRS has a long list, including items like whether or not “you depend on the income for your livelihood” and other fun determining factors.
The IRS understands it can take awhile to become profitable. Typically, you’re approaching hobbyist territory in the eyes of the IRS if you report a loss 3 out of five years of business operations. (A loss means you’re claiming business expenses beyond your income.)
As with all things tax-related, there are exceptions as to what expenses are considered a loss, but that's above my pay grade. You’re a psychic now so you know what I’m about to say . . . talk to your accountant or CPA.
Cruises & Travel Expenses
Cruises are special snowflakes and are subject to their own rules when it comes to travel expenses. According to the IRS, “You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.”
This may not be the happiest news to cruise buffs who spend thousands per year on Seminars at Seas. But remember, I’m just the messenger (not the IRS).
If you want to write off your 2k in cruises, there’s all sorts of stringent requirements you need to meet.
Below, I am copying and pasting what the IRS has to say on the matter, verbatim (why reinvent the wheel):
You can deduct these [cruise] expenses only if all of the following requirements are met.
- The convention, seminar, or meeting is directly related to the active conduct of your trade or business.
- The cruise ship is a vessel registered in the United States.
- All of the cruise ship's ports of call are in the United States or in possessions of the United States.
- You attach to your return a written statement signed by you that includes information about:
- The total days of the trip (not including the days of transportation to and from the cruise ship port),
- The number of hours each day that you devoted to scheduled business activities, and
- A program of the scheduled business activities of the meeting.
- You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:
- A schedule of the business activities of each day of the meeting, and
- The number of hours you attended the scheduled business activities.
Again, if you think your cruise trip/business model is an exception, or you have a bone to pick with these rules, don’t call me. [Enter refrain] Talk to your CPA.
The Elephant in the Room: Is Your Vacation a Travel Expense?
I know that CPA and accountants everywhere are probably going to duck and cover at the merest whisper of deducting trips that have even a whiff of personal travel.
But as a travel agent, it’s confusing since you need to travel to run a successful and profitable business.
Sure, it’s easy enough to justify travel expenses for a conference or an escorted FAM (familiarization trip). But when it comes to deducting travel expenses for any trip that’s in any way attached to personal travel, you’re entering some serious gray area (I like to call this grayland).
The IRS isn’t super helpful when it comes to navigating grayland. Their verdict is this, “If your trip was conducted primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.”
Not exactly cut and dry. Sigh.
I can’t advise you on your taxes (trust me, everyone loses in this scenario). But here’s a few guiding questions that help you determine if your trip is justifiable as a travel expense (and to what extent).
1. What is the primary purpose for your trip? You know in your heart of hearts whether your primary purpose is business or personal. If your primary purpose is to go to Mexico with your family, it’s going to be a tough sell to deduct your travel expenses. (Even if you do sell the resort or region you’re staying at.)
If the primary purpose of your trip is a Oaxaca FAM that’s sponsored by the Mexico tourism board, then that’s a different story. We’ll talk more about mixing business with pleasure later. But here’s the major takeaway: You can deduct only the expenses of your trip that’s directly related to business. (Remember: reasonable, ordinary, necessary).
2. How much of your trip is spent on activity directly related to business activities? You can only write off the travel expenses directly related to business activity. So if you spend 10 days in Mexico with your family, but you spend 3 days ditching your family to go on site inspections you scheduled weeks ago, you can reasonably write off a portion of your trip as a business expense.
Conversely, if you go on your family vacation and decide to pop in to the nearest Sandals at the last minute for a self-administered “tour” in the name of business activity, that is a serious foul in the eyes of the IRS. (We’ll get into scenarios later).
3. Will your business derive income from the trip? You can have the most un-fun, jam-packed business trip in the world. But if you don’t make a good-faith effort to do any followup (ahem, earn moolah) with all your great meetings and research, then this could raise a red flag to the IRS.
4. Is the business activity necessary to your business/niche? If your niche is Italy, it’s going to be tough to write off a trip to Hawaii if you’ve never booked that destination (and don’t plan on doing it any time soon).
5. Is the trip necessary to the business operations you’re conducting? Working away from your tax home doesn’t automatically qualify as a travel expense. To deduct travel expenses, the business activity must necessitate the trip.
For example, if I go visit a friend in Paris and I spend three full days working on this blog post about travel expenses, I may not deduct my trip as a business expense because I could easily conduct these business operations from home. Major bummer.
Same goes for travel agents. If you’re on family vacation but you’re still booking trips and supporting your clients from afar, your travel expenses are not deductible as a travel expense1 because the trip wasn’t required for that particular business activity.
At the end of the day, you need to rely on your common sense (or, better yet, the common sense of your CPA or accountant). Remember the golden rule: travel expenses must be reasonable and necessary to your business.
How do you decide what’s reasonable? These following scenarios will help provide a little perspective.
Travel Expense Scenarios for Travel Agents
When it comes to deducting any business travel expenses that’s (in any way) attached to personal travel, the CPA/accountants I chatted with agreed to proceed with caution.
As an example, here’s a few scenarios by way of example. Please remember that these scenarios are just the crib notes. They’re intended to help give you a lay of the land, not to advise you in any way shape or form:
You fly to the annual ASTA conference on Tues. and stay through Fri. The entire time is scheduled with conference activities except for breakfasts, which you purchase every morning at the resort cafe and charge to your room. On Thurs. night after the conference is over, you take an Uber to meet your long-distance college friend for dinner and drinks. You fly out early Friday morning.
Travel expenses are entirely deductible except for the Uber rides (to and from) and dinner and drinks with your friend.
You’re invited on an escorted FAM in Hawaii. The FAM is 3 days, but you decide to take your family with you and extend your trip, tacking on a 7-day family vacation after your FAM. You stay at the same resort with your family as you did during the FAM.
Since your business operations necessitated the trip to Hawaii, you can write off 100% of your flight and transportation to and from the airport (so long as it’s reasonable). Why? Because you’d have to fly to and from Hawaii and transfer to and from the airport to conduct your business anyway.
Additionally, you can also deduct other travel expenses incurred while you were working (such as meals and incidentals). If you rented a car, you can prorate your rental fees according to what percentage of the time you used it for work (e.g. 30% for 3 of ten days of total cost may be deductible).
You’re on a family vacation to Disney World for 5 days. You take a last-minute lunch meeting to meet a new property manager at a resort you often book. The rest of the time, you enjoy with your family, posting about your time together on your travel agency social media.
None of this trip is deductible except for your meal with the property manager. Sad face.
A baseball fanatic, you decide to go to Japan for the Japan Series. While you’re there, you bring work with you and spend three hours per day booking trips and supporting your traveling clients. The rest of the time, you watch baseball and explore Japan.
None of your travel expenses are deductible because your trip to Japan wasn’t necessary for your business operations you were conducting while there.
These scenarios are merely examples. I know that real-life scenarios are much more complicated. If you’re mixing personal and business travel, be clear about what days you spend working and document your meetings and business activity during those days.
Rhonda was kind enough to pass along this topic to a CPA acquaintance. Here’s what the CPA had to say about grayland: "Well, I guess the best answer is how much of the expense you feel you'd be able to prove to the IRS if they asked is for work and not for pleasure. Personally, I think if the IRS came calling about your scenario, it would be very hard to prove unless you keep a detailed journal of the trips and did not bring along a spouse or any friends . . . It might work, but be careful because if nobody is paying you to go on a cruise for research for their purposes, then at best the IRS could classify it as a hobby and at worst say it is personal expenses trying to be passed off as a business."
At the end of the day, it’s easiest to document your business activity and track expenses if you keep your personal and business travel separated. And let’s be honest, it’s best for your work-life balance too!
Ultimately, you need to ensure you’re doing your due diligence to record and document your trips. Guess what?! We have a few tools to help you do just that.
Documenting Your Travel Expenses
Entering your expenses on beautiful sheets is just part of the administrative fun of tracking travel expenses.
Beyond that cursory bookkeeping, you need to have the receipts, journals, and other documentation to back up your travel expenses. Why?
If the IRS comes calling with an audit letter, you may need to provide your documentation to prove that your travel expenses were (wait for it) reasonable and necessary. To make things more exciting, the IRS can hit you up for explanations about travel you took years ago.
Document. Document. Document. Rhonda Macier Lathen recommends keeping/updating your books quarterly AT MINIMUM. For travel expenses specifically, I recommend just making sure you have all the documentation you need right after the trip.
Get all the info you need: When it comes to big-picture travel expenses, make sure that the receipts have all the details necessary to satisfy the IRS.
Here’s what the IRS considers enough detail:
- Destination Area of Travel
- Date(s) You left for and returned from your trip
- Number of days spent on business
- Amount of expense(s)
Here’s a few tips to make this process as painless as possible:
1. Track Your Cash for incidentals: This tip is from Jay: If you take out cash for tips (or other incidentals) from an ATM, the ATM receipt is not enough documentation. You should write down on your ATM receipt the date, location/service, amount, for which you tipped if you want to take it as a deduction.
2. On meal receipts, write down who attended and what business you discussed: This will help you jog your memory if you ever need to provide further documentation for your expense.
3. For transportation expenses beyond going between airport and hotel, write down where you’re going: When you’re taking the ride share to the ASTA gala, write down the destination/event on your receipt.
4. Keep detailed journals/documentation of business you conduct during travel: This is especially important for “grayland” travel. It’s a benefit for yourself as much as it is for the IRS. But after your trip, write down your actionable items that relate to how you will derive income from your trip.
Are you going to create a new marketing initiative based on the site you toured? Great. Are you going to follow up with future potential clients? Fabulous. Are you growing your list of supplier contacts to expand your book of business? Write down how you plan to follow up from your trip to grow your business.
The truth is that as a good business person, you'll have all this information at your fingertips. Really, it’s just a matter of corralling all that info into one place.
How Long Do I Keep all this Fun Documentation?
The IRS is allowed to dredge up the past. So you want to hang on to all your tax documents. If you’ve been in the biz for awhile, you probably have enough receipts to wallpaper your entire house.
So when exactly can you throw all the stuff away? The rule of thumb is keep documentation for:
- 3 years from the date you filed your return or
- 7 years if you claim a loss
If alarm bells went off when you read “rule of thumb” in regard to taxes, then you’re really getting the spirit of this article! Don’t take it from me. Read the lengthier recommendation on the IRS site or [enter refrain] talk to your CPA.
Travel Expense Tracking Tools:
We whipped up a few goodies to help you along your voyage of figuring out your travel expenses. HAR's Travel Expense Calculator & Tax Organizer
Now that you know which of your travel expenses you can deduct, we have a nifty resource you can use to approximate how much of your trip you can write off. It's also a resource to help you document the purpose of your trips as well (in case you need to refresh your memory).
You give the give the travel expense calculator a gander. But know that, if you decide you want to copy and download the template for yourself or your business, you'll need to create a free Airtable account (essentially it's a spreadsheet on steroids).
This tool will help calculate and track your travel expenses. Emphasis here is on approximate.
We're so excited about HAR's tax organizer that we're going to put the download in our article a second time! (In case we didn't have you convinced at the beginning of the article.
Now you know your actual travel expenses, and you can enter your tally! Hurray! But where do you put all this delectable information? That’s right, in your HAR Tax Organizer!
Now, if I may say so myself, HAR’s tax organizer is a thing of beauty. It’s a form where you calculate all your business expenses. That’s right, we’re talking waaaay beyond travel expenses here!
So download your form and give it a test run by entering your travel expenses.
3. Tracking Apps (HAR uses Expensify)
The more you travel, the more impossible it will be to remember the Wheres? Whys? and What Fors? of your travel expenses. If you are overwhelmed at the thought of tracking all your expenses, stop everything and download an expense tracking app.
I’m sure there’s a ton of expense apps out there, and we’re not going to dig into different options here. HAR uses Expensify. It’s user-friendly and helps create reports very quickly.
What do you use? Tell us in the comments!
Per diem rates vary depending on where you're going (and what year it is). This is a nifty way of determining legitimate, standard per diem rates according to your destination. Remember, if you’re self-employed, you can only use the meal and incidental expenses (M&IE) per diem and you must still document all the expenses.
3. Accounting/ Bookkeeping Software
Below is a list of accounting software.
- Quickbooks and Freshbooks are great for smaller agencies or if you’re starting out. If you want a free option, you can use a Google Spreadsheet or Excel document. (HAR uses Quickbooks.)
- TRAMS and Globalware are for large travel agencies and are travel-specific (unlike the above programs). For the average agency, these programs are not cost-effective.
You can also use free resource such as Google spreadsheets or an Excel sheet.
I can’t emphasize enough how little I knew about taxes before chatting with these amazing people: Rhonda Macier Lathen, thank you for sharing your very rare travel-accounting hybrid knowledge with me!
Jay Elstad has a ton of experience working with travel professionals. I called Jay during his BUSIEST season (mea culpa)! And you know what, he didn’t even get mad at me. In fact, he really went the extra mile to answer my questions and review this article.
I also want to thank a certain retired accountant who demanded he remain anonymous (you know who you are!)
- It’s important to note we’re talking about travel expenses only. You can still write off necessary office expenses you need to conduct business, such as phone calls, wifi, portion of lodging used for your office etc. ↩