Some businesses require employees to travel in order to perform their job effectively. Travel expenses can be deducted, provided they are both ordinary and necessary to the job, through Form 2106, Employee Business Expenses, or Form 2106-EZ Unreimbursed Employee Business Expenses, and Form 1040, Schedule A, Itemized Deductions. Travel expenses incurred for personal reasons or that are uncommon to your industry are not eligible for deduction.
Traveling is defined as being away from your home location of business for more than a typical day’s worth of work, in which you will require rest before performing your job duties professionally again.
Your tax home is the basis for determining when you are traveling. The entire city or area in which you perform a majority of your tasks is considered you tax home, and it is not depending on where your residence is located. For example, you live in Philadelphia with your family, but you work in the Poconos. When you travel between the two places, it is not considered for business purposes, and is instead listed as personal. Therefore you cannot deduct those expenses. However, if you work in the Poconos and must travel to Boston for business, expenses are then deductible, regardless of whether you live in the Poconos or not.
If you work in multiple places, your tax home is defined as the place where most of your business is performed, or where administrative activities are carried out.
Your typical business location includes the amount of time you generally need to perform your tasks at each location, as well as the amount of business you’ll have to conduct in each destination, and the impact on the company’s finances.
Travel expenses you acquired due to a temporary work assignment away from your home are also deductible, though indefinite work assignment expenses are non-deductible. Indefinite work is defined as a period of employment lasting more than 12 months.
You can deduct travel expenses to conferences if you can prove that by attending the event you are benefitting the business. Special rules apply to conferences outside of North America.
Deductible business travel expenses include, but are not limited to:
- Airplane, train, bus, or car expenses for physically moving between job sites
- Using your personal vehicle for company travel, deducting either actual expenses or taking the standard mileage rate, including tolls and parking.
- Taxi fares and other costs incurred to get from the hotel to the airport, and from one business place to another while travelling.
- Lodging and meals (with limits)
- Gratuity for services related to business
- Laundry fees
- Business communication fees
- Baggage shipping charges
Typically, there’s a standard meal allowance allowed for business travel that varies depending on the location of the destination. This allowance makes determining your deduction a little bit easier, though the deduction is typically limited at 50% of your unreimbursed costs.
As an employee, you should deduct unreimbursed travel expenses on Form 2106 or 2106-EZ. Itemized deductions are subject to limitations of your adjusted gross income. Self-employed taxpayers should use Form 1040, Schedule C, Profit or Loss From Business, or Form 1040, Schedule C-EZ, Net Profit From Business, or if you are a farmer, on Form 1040, Schedule F, Profit or Loss From Farming.
Members of the National Guard or reserves may be able to claim unreimbursed expenses experienced in relation to their military duties. In these cases, the deduction is taken as an adjustment to income. Travel must be in excess of 100 miles from home, and must be ordinary and necessary to the industry. The deduction is limited to the per diem rate for lodging and incidentals, as well as the standard mileage rate.