As a general rule, worldstravelonline expenses are deductible as a business expense as long as the expense is considered by the IRS to be an ordinary and necessary business expense under (IRC section 162). But when you incur a travel expense outside the United States, that is when the rules begin to change. Do not assume that 100% of your foreign travel expenses are tax deductible. And better yet, consult with your CPA during the planning phase of your foreign travel in order to maximize your opportunity for a tax deduction.
General Rules Regarding Travel Expenses:
Travel expenses traditionally includes the following categories of expenses associated with at least one overnight stay (i.e. where sleep is required while away from home):
1. Transportation Costs – Transportation includes airplane, train, bus, car, or ship between your home and business destination. It also includes commuter bus, taxi and limousine transportation.
2. Baggage and Shipping Costs- This category includes the cost of sending baggage, samples, display materials between regular and temporary work locations.
3. Lodging Costs – Such costs include overnight hotel stays and temporary housing costs.
4. Meals – Allowable meals expenses include food, beverage, tips and tax. If the meals qualify for a tax deduction they may be 50% or 100% deductible. Meals between employees/employers are generally not deductible unless a business purpose can be substantiated. In cases in which there is a business purpose, the meal is eligible for a 50% tax deduction. Meals also include customer-related meals in which business is discussed (50% deduction).
Also allowed are meals related to business-related travel that includes an overnight stay (50% deductible. If the overnight travel is related to an employer-sponsored social or recreational event the meals are 100% deductible. If the meal is related to promotional activities that are made available by the business to the public such costs are 100% deductible.
5. Cleaning – This category includes dry cleaning and laundry expenses incurred during your travel period.
6. Telephone – Business calls, fax costs or other communication costs associated with the business travel are deductible.
7. Tips paid for any travel expense category are allowed as a tax deduction
8. Other – Other costs related to the business travel might include internet fees, computer rental fees, equipment rental fees, supplies etc.
Travel expenses must be temporary in nature. What this means is that the travel period cannot last more than one year. If the travel lasts more than one year all of the travel expenses become non-deductible.
Special Rules:
1. Conventions – In order for travel costs associated with a convention to be tax deductible, such costs must be directly related to your company’s business and must benefit your company’s business. Conventions outside North America are allowed, however, there is reasonableness test that must be met. Reasonableness is based on the purpose of the meeting, activities taking place at the meeting, activities of any sponsors, homes of sponsors and other material facts and circumstances that the IRS will consider in determining eligibility for the tax deduction.
2. Cruise Ship Conventions – If the convention meets the ordinary and necessary business purpose test and the reasonableness test then the IRS will permit a tax deduction equal to $2,000 per person, per year for travel expenses incurred in connection with the cruise ship convention as long as the ship is a U.S. flagship and all ports of call are located within the United States or its possessions. In order to deduct cruise ship convention travel expenses the business must attach two written statements to their tax return. Statement #1 must be signed by the business owner. This statement specifies the number of hours each day that were devoted to business activities, total days of the trip and the program of business activities on the ship. Statement #2 must be signed by an officer of the cruise ship convention organization and provide detailed schedules of the meetings and the number of hours the taxpayer attended.
