Don't overpay your income taxes by overlooking expenses that you are entitled to deduct. Use this Financial Guide to ensure you are handling your business travel, meal and auto costs in a tax-wise manner.
Table of Contents
Important Tax Law Changes
From 2018 through 2025, employees who travel or incur meal or auto costs for business can't deduct such expenses on Form 1040, Schedule A. This is due to the Tax Cuts and Jobs Act of 2017 (TCJA) suspension of miscellaneous itemized deductions subject to the 2% of adjusted gross income floor. Generally only businesses and the self-employed can deduct such costs.
Travel Expenses
If you're eligible, you generally can deduct two types of travel expenses related to your business:
1. Local Transportation Costs
Commuting expenses aren't deductible, but costs related to trips from your workplace to other locations are deductible. Examples include:
- Public transportation
- Taxi or ride share
- Your own auto expenses
- Parking and tolls
Special Note: For those whose main place of business is their personal residence, business trips from the home office and back are considered deductible transportation and not non-deductible commuting.
2. Away-from-Home Travel Expenses
You can only deduct one-half of the cost of meals (50 percent) in 2024. Other expenses include:
- Lodging expenses (fully deductible)
- Transportation expenses (100% deductible if business is primary reason)
- Incidentals and other business-related costs
Note: The 100 percent deduction for restaurant meals in 2021-2022 was not extended.
Key Definitions
"Ordinary and Necessary"
Travel expenses must be "ordinary and necessary," although "necessary" is liberally defined as "helpful and appropriate," not "indispensable." The deduction is denied for "lavish or extravagant" expenses, though this doesn't bar first-class travel or deluxe accommodations.
"Away from Home"
To deduct lodging and meal costs, you must stay somewhere overnight - longer than an ordinary day's work and need to sleep or rest to meet work demands. Otherwise, costs are considered local transportation and lodging/meals are not deductible.
Your "Tax Home"
Your "home" for tax purposes is generally your place of business or post of duty, not where your family lives. This determines what travel expenses are deductible.
Examples of Tax Home Rules
Example #1: George's Situation
George's family lives in Boston and his business is in Washington, DC. He spends weekends in Boston and weekdays in Washington, staying in a hotel and eating out.
Result: George's "home" is Washington, DC, so he cannot deduct travel between cities, eating out in Washington, or staying in a Washington hotel.
Example #2: Joe's Dual Locations
Joe lives in Connecticut and works 8 months there ($100,000) and 4 months in Florida ($50,000).
Result: Connecticut is Joe's tax home, so travel to/from Florida and Florida meals/lodging are deductible.
Deductible Away-from-Home Expenses
- Meals (50% in 2024) and lodging
- Clothes cleaning and pressing
- Transportation between job sites
- Airfare, bus fare, rail fare
- Baggage shipping costs
- Sample displays and display rooms
- Car operation and garaging
- Airplane operation and hangar costs
- Equipment rentals and stenographers
- Related tips
Non-Deductible Travel Expenses
- Travel as general education
- Seeking new business location
- Luxury water travel (subject to limits)
- Seeking foreign customers
- Personal sightseeing
- Family travel costs
Meal and Entertainment Expenses
TCJA Changes
Under the TCJA, entertainment expenses paid after December 31, 2017, are not deductible unless they fall under specific exceptions (e.g., employee social activities).
- Dues to country clubs, social clubs, golf clubs are not deductible
- Professional and civic organization dues are not deductible
- Prior to 2018, these were 50% deductible with business purpose
Meals with Clients
Meals with clients are still 50% deductible as long as they're:
- "Ordinary and necessary"
- Not "lavish or extravagant"
- Directly related to or associated with your business
"Directly Related" Test
Expenses are directly related if you can show:
- More than general expectation of business benefit
- You conducted business during the meal
- Active conduct of business was main purpose
"Associated With" Test
If not directly related, you can still deduct if:
- Meal directly precedes or follows substantial business discussion
- You had clear business purpose when taking expense
- Person is a business associate (customer, employee, advisor)
Recordkeeping and Substantiation Requirements
IRS Requirements
Tax law requires you to keep records that will prove the business purpose and amounts of your business travel and meal expenses. You must prove:
- The amount
- The time and place of the travel or meal
- The business purpose
- The business relationship of meal recipients
Away-from-Home Travel Documentation
You must document for each trip:
- Amount of each expense (transportation, lodging, meals)
- Departure and return dates, number of business days
- Destination
- Business reason or expected benefit
Tip: You can group similar incidentals together (e.g., "meals, taxis")
Business Meal Documentation
You must prove for each meal deduction:
- The amount
- The date of the meal
- Name, title, and occupation of meal guests
- Business relationship of guests
Best Practice: Keep a diary or logbook and record activities close to the time expenses are incurred.
Employees Who Are "Fully Reimbursed"
Accountable Plan Requirements
Employees who are fully reimbursed must:
- Adequately account to employer via expense account statement
- Return any excess reimbursement
As long as you follow an "accountable plan" and reimbursements don't exceed expenses, you won't report reimbursements as gross income.
Non-Accountable Plans
If your employer's reimbursement plan is not "accountable," you must report reimbursements as income. Prior to 2018, you could deduct these expenses as miscellaneous itemized deductions, but the TCJA eliminated these deductions for 2018-2025.
Auto Expenses
If you're eligible, you have two choices for claiming business auto expense deductions:
Actual Cost Method
Deduct actual business-related costs including:
- Gas and oil
- Lubrication and repairs
- Tires and supplies
- Parking and tolls
- Chauffeur salaries
- Depreciation
Standard Mileage Method
Use an inflation-adjusted cents-per-mile rate multiplied by business miles driven.
Note: Parking fees and tolls may be deducted with either method.
Key Considerations
Section 179 Expensing
If car is used more than 50% for business, it can qualify for Section 179 expensing in the year of purchase. Deduction is reduced proportionately for personal use.
Depreciation Options
Several depreciation options available with yearly limits. Depreciation is reduced by proportion of personal use (e.g., 20% personal use = 80% depreciation allowed).
Accelerated Depreciation
Not allowed where personal use is 50% or more. If business use falls to 50% or less after claiming accelerated depreciation, you become subject to "recapture" of excess depreciation.
Standard Mileage Benefits
Usually benefits taxpayers with less expensive cars or high business mileage. Once chosen, cannot use accelerated depreciation even if switching to actual cost method later.
Recordkeeping Requirements
Tax law requires travel expense records and information showing business versus personal use. Essential for:
- Audit protection
- Determining which method is better
- Keeping receipts for actual cost method
- Tracking business vs personal miles
Pro Tip: Using a separate credit card for business simplifies record-keeping. Don't forget to deduct interest on business-use car financing if self-employed.
Disclaimer: This Content is for informational purposes only. Nothing contained herein constitutes accounting, tax, financial, investment, legal or other professional advice, and, accordingly, the author and the distributor assume no liability whatsoever in connection with its use. This Content is not an exhaustive explanation of any topic, practice or process. You should seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.