10 minute read
Let’s get one thing straight: vacation costs are not deductible. They’re not deductible for an individual, and they’re not deductible for a business.
However, this does not mean that travel expenses are nondeductible. If you are a business owner and travel for work, you can deduct those costs as a legitimate business expense.
What you need to be careful about is when a work trip has elements of pleasure in it. If a personal vacation is simply masquerading as a work trip, you will likely lose the deduction. But there are things you can do get the full travel deduction.
The answer to this question depends on who pays for the travel expenses.
If the business pays for the travel expenses, they are deductible alongside other legitimate business expenses like rent, supplies, and payroll. But if an individual pays for them (and does not get reimbursed by their employer), those costs become nondeductible. This is true even if the employee incurred those costs to perform required job duties.
But why can’t individuals deduct travel costs?
Prior to 2018, unreimbursed business expenses (including travel) were deductible for an individual when those costs exceeded 2% of their adjusted gross income (AGI). When Congress passed the Tax Cuts and Jobs Act (TCJA), they eliminated the 2% miscellaneous itemized deduction through 2025. There is no other mechanism that allows taxpayers to deduct travel expenses incurred on behalf of an employer on their tax returns.
But business owners are a different story. If you are a small business owner, you can deduct legitimate business expenses from business income. This includes expenses related to travel.
To be deductible, travel expenses must be ordinary and necessary to perform work duties. Fortunately, the types of expenses that qualify for the travel tax deduction are far-reaching. They include:
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When traveling out of town for work, some people will stay an extra few days and tack on a vacation. In this scenario, expenses incurred during the work event (that are necessary to attend the work event) would be deductible. Costs incurred during the vacation portion of the trip would be nondeductible.
You travel to Hawaii for a work conference, paid for by the business. The conference lasts for five days. You choose to extend your stay in Hawaii by an additional week.
QUESTION: What costs are deductible?
ANSWER: The costs of travel to and from Hawaii are deductible to the business because they were necessary to get you to the work conference and back. Amounts for meals and lodging you spent during the five days they were attending the conference are also deductible. Any meals, lodging, or travel costs outside of those conference days would be nondeductible vacation costs. If you went on an excursion during the five-day conference that was unrelated to the work events – like an evening helicopter ride to see the sights – that cost would also be nondeductible.
But the deductibility of travel expenses isn’t always so clear-cut. If you travel to a vacation destination and perform work duties while there, the IRS may reject your travel deduction.
You are a self-employed photographer. You want to get stock footage at three Utah National Parks to use in your portfolio. While in Utah, you go hiking, mountain biking, and relax in an Airbnb.
QUESTION: Would the entire trip be deductible?
ANSWER: It depends. If the trip is primarily for business and you can provide proof that it was, the travel costs are fully deductible. If the trip is primarily for vacation, the entire trip will be nondeductible, even if you performed some work duties on vacation. You need to be honest about the purpose of the vacation.
The IRS provides useful information that can help you determine if your travel is deductible, but here are a few easy things you should do:
You must be able to prove that your trip was primarily for a business purpose. Proof will vary in each circumstance, but here are a few examples:
For amounts greater than $75, you will need to have receipts to substantiate your expenses. You will not need to provide these receipts with your tax return, but you should have them ready in the event the IRS questions the deduction. The documents should show dates and itemized expenses. If you need to substantiate meal costs, itemization is especially important. The meal allowance is tricky. Meals that accompany entertainment expenses are deductible, but only if the receipt clearly delineates those two costs.
The IRS recommends that you keep records for three years from the date you filed your tax return.
If you incur costs that apply to both the work trip and the vacation, you’ll need to know how to allocate those costs. Consider the costs of renting a car. If you attended a work conference for three days and took a vacation the following six days, only a third of the rental car costs would be deductible. The IRS will also consider who else is using the vehicle. If, for example, you and your colleague share the rental car, only your half of those costs would be deductible to the business. The other half would be deductible to your colleague’s business.
Extending a work trip into a vacation isn’t necessarily a bad move. As long as you are aware that you will need to substantiate the reason for traveling, you should be in the clear. If you want to dive deeper into other possible deductions besides travel, tax planning software can find potential savings at both the individual and business level.
See how Corvee allows your firm to break free of the tax prep cycle and begin making the profits you deserve.
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