The most frequently forgotten deduction: Travel and how to make it work for you

When it comes to tax deductions, travel expenses are one of the most underutilized benefits available to small business owners. Unlike meals, which are only 50% deductible, travel expenses are 100% deductible, covering things like airfare, hotel stays, rental cars, and rideshare services like Uber or Lyft. Surprisingly, many business owners overlook this opportunity—every year I see tax returns with zero travel deductions.

If you’re wondering whether your past or upcoming travel could qualify for business deductions, here are five simple ways to make your travel expenses a tax write-off:

1. Meet with a Client

Whenever you’re on the road, find an opportunity to meet with a client. Having multiple streams of income or several small businesses can increase your chances of having clients in different locations, making business-related travel easier to justify.

2. Meet with a Vendor

If you’re already traveling, think about whether there’s a vendor or support professional you can meet. Whether it’s your supplier or service provider, scheduling in-person meetings with your vendors can make your travel count as business-related.

3. Attend Conferences or Training Events

There are numerous professional organizations, conferences, and continuing education opportunities in most major cities. Whether it’s a real estate club, an industry-specific seminar, or networking event, attending these gatherings can be a legitimate business purpose for travel.

4. Check on Your Rental Property

If you own rental property, especially in a place you frequently visit, trips to the property to check on tenants or meet with the property manager can be tax-deductible. While searching for a new property doesn’t count, once you own it, any travel to manage it does.

5. Hold Annual Board Meetings

Consider scheduling your annual board meeting in a destination you’d like to visit. While some may see these meetings as a formality, they offer a perfect opportunity to justify a tax-deductible trip. Just make sure to document meeting minutes and business discussions thoroughly.

How to combine business with pleasure and still take a write off for it?

It’s important to remember that you can only deduct expenses for days you are conducting actual business. A good rule of thumb is to ensure you are working at least four hours on a business day. For instance, if you travel on Thursday, do business on Friday, relax on Saturday and Sunday, and have meetings on Monday, the entire trip could be deductible because business activities are bookending the personal time. However, if you spend seven days in Hawaii and only work for one day, only a portion of your trip will qualify for deductions.

What if my spouse is traveling with me? Can I still take a deduction for them?

You can also deduct your spouse’s travel expenses if they’re working alongside you. If your spouse is an employee or board member of your business, their airfare and accommodations can be written off. Even if they’re not getting paid directly, having them involved in the business as a part-owner or advisor can justify the deduction.

Understanding Per Diem: A Simplified Approach to Travel Deductions

If you’re not someone who likes keeping track of receipts, you might want to consider using a per diem rate to deduct your travel meal expenses. The per diem system allows you to claim a fixed daily rate for travel expenses, rather than tallying up every receipt. These rates are set by the government and vary depending on the location and time of year. You can find the most current per diem rates by visiting www.gsa.gov/travel/plan-book/per-diem-rates, which offers a searchable database for every city and state.

How Per Diem Works: An Example

Let’s take Las Vegas as an example. Imagine the per diem rate for a hotel in January is $134 per night. If you manage to find a cheaper option, say a room for $65 off the Strip, you’re still allowed to deduct the full per diem amount of $134. This gives you a nice tax break on top of your savings.

However, if you decide to splurge on a $400 per night luxury hotel, you can only deduct the standard per diem rate of $134. The extra expense would come out of pocket with no tax benefit. But here’s where keeping your receipts can help: if you do spend $400 and retain the receipt, you can deduct the greater amount—either the actual cost or the per diem rate. In this case, you’d definitely want to claim the full $400.

Should You Use Per Diem or Actual Expenses?

When it comes to choosing between reimbursing yourself (or your employees) using the per diem rate or the actual travel costs, the best approach is to let your business pay directly for travel expenses. This simplifies bookkeeping. Track situations where the per diem rate would give you a higher deduction and have your accountant make a journal entry at year-end to adjust accordingly. This way, you maximize your deductions while staying organized.

Important Considerations: Cruises and Dining

Beware of Cruises

While it might sound tempting to book a cruise and claim it as a business expense, cruises come with specific tax limitations. There’s a strict daily per diem cap—typically around $120 per person—regardless of how much you actually spend. Even worse, to claim the expense, you need to demonstrate that you conducted business every day of the cruise. Given how cruises are typically enjoyed, it’s tough to justify long stretches of business activity. So, if you’re thinking about taking your team on a four-day booze cruise to Cabo, don’t expect Uncle Sam to cover the tab.

Dining Deductions While Traveling

Another potential pitfall involves dining while traveling. While you can deduct 50% of your meals, that rule still applies whether you’re eating in a restaurant or ordering room service at your hotel. Even if your meal is rolled into a 100%-deductible hotel bill, you can’t hide it there to bypass the 50% limitation. Make sure you separate out the meal costs for proper reporting, and remember, those lavish room service charges are only half deductible—no matter how comfortable the robe is.

Final Thoughts on Travel Deductions

Using the per diem rate can be a helpful tool for deducting travel expenses without worrying about receipts, but you need to be mindful of the limitations. Whether you’re deducting hotel stays, meals, or even considering a cruise, staying honest and organized is key to making sure your deductions pass muster with the IRS. And don’t forget, your business should cover the expenses directly to simplify the process.

By staying within the guidelines and making smart decisions, you can turn your business travel into valuable tax savings without any unnecessary headaches.