Standard
mileage rate. The
standard mileage rate for the
cost of operating your car in
2004 is 37½ cents a mile for all
business miles. Car expenses and
use of the standard mileage rate
are explained under
Transportation Expenses,
later.
Standard
mileage rate method. Beginning
in 2004, you can use the
standard mileage rate to figure
the deductible costs of
operating up to four cars at the
same time. In earlier years, you
could not use the standard
mileage rate if you used two or
more cars at the same time. See
Standard Mileage Rate,
later.
Depreciation
limits on cars, and trucks and
vans. The
total section 179 deduction and
depreciation (including the
special depreciation allowance)
you can claim on cars and trucks
and vans you use for business
purposes has decreased for cars
first placed in service in 2004.
See
Depreciation limits
in chapter 4 of Publication 463.
Meal expenses
when subject to “hours
of service” limits. Generally,
you can deduct only 50% of your
business-related meal expenses
while traveling away from your
tax home for business purposes.
You can deduct a higher
percentage if the meals take
place during or incident to any
period subject to the Department
of Transportation's “hours
of service” limits.
(These limits apply to certain
workers who are under certain
federal regulations.) The
percentage is 70% for 2004. See
Exceptions to the 50% Limit
under 50% Limit,
later.
Introduction
You may be able to deduct
the ordinary and necessary
business-related expenses you
have for:
Travel,
Entertainment,
Gifts, or
Transportation.
An ordinary expense is one
that is common and accepted in
your field of trade, business,
or profession. A necessary
expense is one that is helpful
and appropriate for your
business. An expense does not
have to be required to be
considered necessary.
This chapter explains:
What expenses are
deductible,
What records you
need to prove your
expenses,
How to treat any
expense reimbursements
you may receive, and
How to report your
expenses on your return.
Who does
not need to use this
chapter.
If you are an employee,
you will not need to read
this chapter if all of the
following are true.
You fully
accounted to your
employer for your
work-related
expenses.
You received
full reimbursement
for your expenses.
Your employer
required you to
return any excess
reimbursement and
you did so.
There is no
amount shown with a
code “L”
in box 12 of your
Form W-2, Wage and
Tax Statement.
If you meet these four
conditions, there is no need
to show the expenses or the
reimbursements on your
return. See
Reimbursements,
later, if you would like
more information on
reimbursements and
accounting to your employer.
If you meet these
conditions and your employer
included reimbursements on
your Form W-2 in error, ask
your employer for a
corrected Form W-2.
Useful Items - You
may want to see:
Publication
463
Travel, Entertainment,
Gift, and Car Expenses
535
Business Expenses
1542
Per Diem Rates
Form
(and Instructions)
Schedule A (Form 1040)
Itemized Deductions
Schedule C (Form 1040)
Profit or Loss From
Business
Schedule C-EZ (Form
1040)
Net Profit From Business
Schedule F (Form 1040)
Profit or Loss From
Farming
Form 2106
Employee Business
Expenses
Form 2106-EZ
Unreimbursed Employee
Business Expenses
Travel Expenses
If you temporarily travel
away from your tax home, you can
use this section to determine if
you have deductible travel
expenses. This section
discusses:
Traveling away from
home,
Tax home,
Temporary
assignment, and
What travel expenses
are deductible.
It also discusses the
standard meal allowance, rules
for travel inside and outside
the United States, and
deductible convention expenses.
Travel
expenses defined.
For tax purposes, travel
expenses are the ordinary
and necessary expenses
(defined earlier) of
traveling away from home for
your business, profession,
or job.
You will find examples of
deductible travel expenses
in Table 28-1.
Traveling
Away From Home
You are traveling away
from home if:
Your duties
require you to be
away from the
general area of your
tax home (defined
later) substantially
longer than an
ordinary day's work,
and
You need to
sleep or rest to
meet the demands of
your work while away
from home.
This rest requirement is
not satisfied by merely
napping in your car. You do
not have to be away from
your tax home for a whole
day or from dusk to dawn as
long as your relief from
duty is long enough to get
necessary sleep or rest.
Example 1.
You are a railroad
conductor. You leave
your home terminal on a
regularly scheduled
round-trip run between
two cities and return
home 16 hours later.
During the run, you have
6 hours off at your
turnaround point where
you eat two meals and
rent a hotel room to get
necessary sleep before
starting the return
trip. You are considered
to be away from home.
Example 2.
You are a truck
driver. You leave your
terminal and return to
it later the same day.
You get an hour off at
your turnaround point to
eat. Because you are not
off to get necessary
sleep and the brief time
off is not an adequate
rest period, you are not
traveling away from
home.
Members
of the Armed Forces.
If you are a member of
the U.S. Armed Forces on
a permanent duty
assignment overseas, you
are not traveling away
from home. You cannot
deduct your expenses for
meals and lodging. You
cannot deduct these
expenses even if you
have to maintain a home
in the United States for
your family members who
are not allowed to
accompany you overseas.
If you are transferred
from one permanent duty
station to another, you
may have deductible
moving expenses, which
are explained in chapter
19.
A naval officer
assigned to permanent
duty aboard a ship that
has regular eating and
living facilities has a
tax home aboard ship for
travel expense purposes.
Travel
to family home.
If you (and your
family) do not live at
your tax home, you
cannot deduct the cost
of traveling between
your tax home and your
family home. You also
cannot deduct the cost
of meals and lodging
while at your tax home.
See
Example 1 that follows.
If you are working
temporarily in the same
city where you and your
family live, you may be
considered as traveling
away from home. See
Example 2, below.
Example 1.
You are a truck
driver and you and
your family live in
Tucson. You are
employed by a
trucking firm that
has its terminal in
Phoenix. At the end
of your long runs,
you return to your
home terminal in
Phoenix and spend
one night there
before returning
home. You cannot
deduct any expenses
you have for meals
and lodging in
Phoenix or the cost
of traveling from
Phoenix to Tucson.
This is because
Phoenix is your tax
home.
Example 2.
Your family home
is in Pittsburgh,
where you work 12
weeks a year. The
rest of the year you
work for the same
employer in
Baltimore. In
Baltimore, you eat
in restaurants and
sleep in a rooming
house. Your salary
is the same whether
you are in
Pittsburgh or
Baltimore.
Because you spend
most of your working
time and earn most
of your salary in
Baltimore, that city
is your tax home.
You cannot deduct
any expenses you
have for meals and
lodging there.
However, when you
return to work in
Pittsburgh, you are
away from your tax
home even though you
stay at your family
home. You can deduct
the cost of your
round trip between
Baltimore and
Pittsburgh. You can
also deduct your
part of your
family's living
expenses for meals
and lodging while
you are living and
working in
Pittsburgh.
Tax Home
To determine whether you
are traveling away from
home, you must first
determine the location of
your tax home.
Generally, your tax home
is your regular place of
business or post of duty,
regardless of where you
maintain your family home.
It includes the entire city
or general area in which
your business or work is
located.
If you have more than one
regular place of business,
your tax home is your main
place of business. See
Main place of business or
work, later.
If you do not have a
regular or a main place of
business because of the
nature of your work, then
your tax home may be the
place where you regularly
live. See
No main place of business or
work, later.
If you do not have a
regular place of business or
post of duty and there is no
place where you regularly
live, you are considered a
transient (an itinerant) and
your tax home is wherever
you work. As a transient,
you cannot claim a travel
expense deduction because
you are never considered to
be traveling away from home.
Main
place of business or
work. If you have
more than one place of
business or work,
consider the following
when determining which
one is your main place
of business or work.
The total
time you
ordinarily spend
in each place.
The level of
your business
activity in each
place.
Whether your
income from each
place is
significant or
insignificant.
Example.
You live in
Cincinnati where you
have a seasonal job
for 8 months each
year and earn
$25,000. You work
the other 4 months
in Miami, also at a
seasonal job, and
earn $9,000.
Cincinnati is your
main place of work
because you spend
most of your time
there and earn most
of your income
there.
No main
place of business or
work.
You may have a tax
home even if you do not
have a regular or main
place of business or
work. Your tax home may
be the home where you
regularly live.
Factors used to
determine tax home.
If you do not have a
regular or main place of
business or work, use
the following three
factors to determine
where your tax home is.
You perform
part of your
business in the
area of your
main home and
use that home
for lodging
while doing
business in the
area.
You have
living expenses
at your main
home that you
duplicate
because your
business
requires you to
be away from
that home.
You have not
abandoned the
area in which
both your
historical place
of lodging and
your claimed
main home are
located; you
have a member or
members of your
family living at
your main home;
or you often use
that home for
lodging.
If you satisfy all
three factors, your tax
home is the home where
you regularly live. If
you satisfy only two
factors, you may have a
tax home depending on
all the facts and
circumstances. If you
satisfy only one factor,
you are a transient;
your tax home is
wherever you work and
you cannot deduct travel
expenses.
Example.
You are single
and live in Boston
in an apartment you
rent. You have
worked for your
employer in Boston
for a number of
years. Your employer
enrolls you in a
12-month executive
training program.
You do not expect to
return to work in
Boston after you
complete your
training.
During your
training, you do not
do any work in
Boston. Instead, you
receive classroom
and on-the-job
training throughout
the United States.
You keep your
apartment in Boston
and return to it
frequently. You use
your apartment to
conduct your
personal business.
You also keep up
your community
contacts in Boston.
When you complete
your training, you
are transferred to
Los Angeles.
You do not
satisfy factor (1)
because you did not
work in Boston. You
satisfy factor (2)
because you had
duplicate living
expenses. You also
satisfy factor (3)
because you did not
abandon your
apartment in Boston
as your main home,
you kept your
community contacts,
and you frequently
returned to live in
your apartment. You
have a tax home in
Boston.
Temporary
Assignment or
Job
You may regularly work at
your tax home and also work
at another location. It may
not be practical to return
to your tax home from this
other location at the end of
each work day.
Temporary assignment vs.
indefinite assignment.
If your assignment or
job away from your main
place of work is
temporary, your tax home
does not change. You are
considered to be away
from home for the whole
period you are away from
your main place of work.
You can deduct your
travel expenses if they
otherwise qualify for
deduction. Generally, a
temporary assignment in
a single location is one
that is realistically
expected to last (and
does in fact last) for
one year or less.
However, if your
assignment or job is
indefinite, the location
of the assignment or job
becomes your new tax
home and you cannot
deduct your travel
expenses while there. An
assignment or job in a
single location is
considered indefinite if
it is realistically
expected to last for
more than one year,
whether or not it
actually lasts for more
than one year.
If your assignment is
indefinite, you must
include in your income
any amounts you receive
from your employer for
living expenses, even if
they are called travel
allowances and you
account to your employer
for them. You may be
able to deduct the cost
of relocating to your
new tax home as a moving
expense. See chapter 19
for more information.
Exception for federal
crime investigations or
prosecutions.
If you are a federal
employee participating
in a federal crime
investigation or
prosecution, you are not
subject to the one-year
rule. This means you may
be able to deduct travel
expenses even if you are
away from your tax home
for more than one year.
For you to qualify,
the Attorney General
must certify that you
are traveling:
For the
federal
government,
In a
temporary duty
status, and
To
investigate or
prosecute, or
provide support
services for the
investigation or
prosecution of,
a federal crime.
You can deduct your
otherwise allowable
travel expenses
throughout the period of
certification.
Determining temporary or
indefinite. You
must determine whether
your assignment is
temporary or indefinite
when you start work. If
you expect an assignment
or job to last for one
year or less, it is
temporary unless there
are facts and
circumstances that
indicate otherwise. An
assignment or job that
is initially temporary
may become indefinite
due to changed
circumstances. A series
of assignments to the
same location, all for
short periods but that
together cover a long
period, may be
considered an indefinite
assignment.
Going
home on days off.
If you go back to your
tax home from a
temporary assignment on
your days off, you are
not considered away from
home while you are in
your hometown. You
cannot deduct the cost
of your meals and
lodging there. However,
you can deduct your
travel expenses,
including meals and
lodging, while traveling
between your temporary
place of work and your
tax home. You can claim
these expenses up to the
amount it would have
cost you to stay at your
temporary place of work.
If you keep your hotel
room during your visit
home, you can deduct the
cost of your hotel room.
In addition, you can
deduct your expenses of
returning home up to the
amount you would have
spent for meals had you
stayed at your temporary
place of work.
Probationary work
period.
If you take a job that
requires you to move,
with the understanding
that you will keep the
job if your work is
satisfactory during a
probationary period, the
job is indefinite. You
cannot deduct any of
your expenses for meals
and lodging during the
probationary period.
What Travel
Expenses Are
Deductible?
Once you have determined
that you are traveling away
from your tax home, you can
determine what travel
expenses are deductible.
You can deduct ordinary
and necessary expenses you
have when you travel away
from home on business. The
type of expense you can
deduct depends on the facts
and your circumstances.
Table 28-1.
Travel
Expenses You
Can Deduct
This
chart
summarizes
expenses you
can deduct
when you
travel away
from home
for business
purposes.
IF you have
expenses
for...
THEN you can
deduct the
costs of...
transportation
travel by
airplane,
train, bus,
or car
between your
home and
your
business
destination.
If you were
provided
with a
ticket or
you are
riding free
as a result
of a
frequent
traveler or
similar
program,
your cost is
zero. If you
travel by
ship, see
Luxury
Water Travel
and
Cruise
ships
(under
Conventions)
in
Publication
463 for
additional
rules and
limits.
taxi,
commuter
bus, and
airport
limousine
fares for
these and
other types
of
transportation
that take
you between:
The
airport
or
station
and
your
hotel,
and
The
hotel
and
the
work
location
of
your
customers
or
clients,
your
business
meeting
place,
or
your
temporary
work
location.
baggage and
shipping
sending
baggage and
sample or
display
material
between your
regular and
temporary
work
locations.
car
operating
and
maintaining
your car
when
traveling
away from
home on
business.
You can
deduct
actual
expenses or
the standard
mileage rate
as well as
business-related
tolls and
parking. If
you rent a
car while
away from
home on
business,
you can
deduct only
the
business-use
portion of
the
expenses.
lodging and
meals
your lodging
and meals if
your
business
trip is
overnight or
long enough
that you
need to stop
for sleep or
rest to
properly
perform your
duties.
Meals
include
amounts
spent for
food,
beverages,
taxes, and
related
tips. See
Meals
and
incidental
expenses
for
additional
rules and
limits.
cleaning
dry cleaning
and laundry.
telephone
business
calls while
on your
business
trip. This
includes
business
communication
by fax
machine or
other
communication
devices.
tips
tips you pay
for any
expenses in
this chart.
other
other
similar
ordinary and
necessary
expenses
related to
your
business
travel.
These
expenses
might
include
transportation
to or from a
business
meal, public
stenographer's
fees,
computer
rental fees,
and
operating
and
maintaining
a house
trailer.
Table 28-1 summarizes
travel expenses you may be
able to deduct. You may have
other deductible travel
expenses that are not
covered there, depending on
the facts and your
circumstances.
When you travel away
from home on business, you
should keep records of all
the expenses you have and
any advances you receive
from your employer. You can
use a log, diary, notebook,
or any other written record
to keep track of your
expenses. The types of
expenses you need to record,
along with supporting
documentation, are described
in Table 28-2, later.
Separating costs.
If you have one
expense that includes
the costs of meals,
entertainment, and other
services (such as
lodging or
transportation), you
must allocate that
expense between the cost
of meals and
entertainment and the
cost of other services.
You must have a
reasonable basis for
making this allocation.
For example, you must
allocate your expenses
if a hotel includes one
or more meals in its
room charge.
Travel
expenses for another
individual.
If a spouse,
dependent, or other
individual goes with you
(or your employee) on a
business trip or to a
business convention, you
generally cannot deduct
his or her travel
expenses.
Employee.
You can deduct the
travel expenses of
someone who goes with
you if that person:
Is your
employee,
Has a
bona fide
business purpose
for the travel,
and
Would
otherwise be
allowed to
deduct the
travel expenses.
Business associate.
If a business
associate travels with
you and meets the
conditions in (2) and
(3) above, you can
deduct the travel
expenses you have for
that person. A business
associate is someone
with whom you could
reasonably expect to
actively conduct
business. A business
associate can be a
current or prospective
(likely to become)
customer, client,
supplier, employee,
agent, partner, or
professional advisor.
Bona fide business
purpose.
A
bona fide
business purpose exists
if you can prove a real
business purpose for the
individual's presence.
Incidental services,
such as typing notes or
assisting in
entertaining customers,
are not enough to make
the expenses deductible.
Example.
Jerry drives to
Chicago on business and
takes his wife, Linda,
with him. Linda is not
Jerry's employee. Linda
occasionally types
notes, performs similar
services, and
accompanies Jerry to
luncheons and dinners.
The performance of these
services does not
establish that her
presence on the trip is
necessary to the conduct
of Jerry's business. Her
expenses are not
deductible.
Jerry pays $115 a day
for a double room. A
single room costs $90 a
day. He can deduct the
total cost of driving
his car to and from
Chicago, but only $90 a
day for his hotel room.
If he uses public
transportation, he can
deduct only his fare.
Meals and
Incidental
Expenses
You can deduct the
cost of meals in either
of the following two
situations.
It is
necessary for
you to stop for
substantial
sleep or rest to
properly perform
your duties
while traveling
away from home
on business.
The meal is
business-related
entertainment.
You can deduct
incidental expenses if
requirement (1) above is
met.
Business-related
entertainment is
discussed under
Entertainment
Expenses,
later. The following
discussion deals with
meals that are not
business-related
entertainment and with
incidental expenses.
Lavish or
extravagant.
You cannot deduct
expenses for meals
that are lavish or
extravagant. An
expense is not
considered lavish or
extravagant if it is
reasonable based on
the facts and
circumstances.
Expenses will not be
disallowed merely
because they are
more than a fixed
dollar amount or
take place at deluxe
restaurants, hotels,
nightclubs, or
resorts.
50%
limit on meals.
You can figure
your meal expenses
using either of the
following two
methods.
Actual
cost.
The
standard
meal
allowance.
Both of these
methods are
explained below.
But, regardless of
the method you use,
you generally can
deduct only 50% of
the unreimbursed
cost of your meals.
If you are
reimbursed for the
cost of your meals,
how you apply the
50% limit depends on
whether your
employer's
reimbursement plan
was accountable or
nonaccountable. If
you are not
reimbursed, the 50%
limit applies
whether the
unreimbursed meal
expense is for
business travel or
business
entertainment. The
50% limit is
explained later
under
Entertainment
Expenses. Accountable
and nonaccountable
plans are discussed
later under
Reimbursements.
Actual cost.
You can use the
actual cost of your
meals to figure the
amount of your
expense before
reimbursement and
application of the
50% deduction limit.
If you use this
method, you must
keep records of your
actual cost.
Standard meal
allowance.
Generally, you can
use the “standard
meal allowance”
method as an
alternative to the
actual cost method.
It allows you to use
a set amount for
your daily meals and
incidental expenses
(M&IE), instead of
keeping records of
your actual costs.
The set amount
varies depending on
where and when you
travel. In this
chapter, “standard
meal allowance”
refers to the
federal rate for
M&IE, discussed
later under
Amount of
standard meal
allowance.
If you use the
standard meal
allowance, you still
must keep records to
prove the time,
place, and business
purpose of your
travel. See
Recordkeeping,
later.
Incidental
expenses.
The term “incidental
expenses”
means:
Fees and
tips given
to porters,
baggage
carriers,
bellhops,
hotel maids,
stewards or
stewardesses
and others
on ships,
and hotel
servants in
foreign
countries,
Transportation
between
places of
lodging or
business and
places where
meals are
taken, if
suitable
meals cannot
be obtained
at the
temporary
duty site,
and
Mailing
costs
associated
with filing
travel
vouchers and
payment of
employer-sponsored
charge card
billings.
Incidental
expenses do not
include expenses for
laundry, cleaning
and pressing of
clothing, lodging
taxes, or the costs
of telegrams or
telephone calls.
Incidental
expenses only
method.
You can use an
optional method
(instead of actual
cost) for deducting
incidental expenses
only. The amount of
the deduction is $3
a day for incidental
expenses paid or
incurred for travel
away from home in
2004. You can use
this method only if
you did not pay or
incur any meal
expenses. You cannot
use this method on
any day that you use
the standard meal
allowance.
Federal
employees should
refer to the Federal
Travel Regulations
at
www.gsa.gov
click on “Travel”
then on “Federal
Travel Regulation
(FTR) Overview”
for changes
affecting their
claims for
reimbursement of
these expenses.
50% limit may
apply.
If you use this
method for meal
expenses and you are
not reimbursed or
you are reimbursed
under a
nonaccountable plan,
you can generally
deduct only 50% of
the standard meal
allowance. If you
are reimbursed under
an accountable plan
and you are
deducting amounts
that are more than
your reimbursements,
you can deduct only
50% of the excess
amount. The 50%
limit is explained
later under
Entertainment
Expenses. Accountable
and nonaccountable
plans are discussed
later under
Reimbursements.
There is no optional
standard lodging amount
similar to the standard
meal allowance. Your
allowable lodging
expense deduction is
your actual cost.
Who can use the
standard meal
allowance.
You can use the
standard meal
allowance whether
you are an employee
or self-employed,
and whether or not
you are reimbursed
for your traveling
expenses.
Use
of the standard meal
allowance for other
travel.You can use the
standard meal
allowance to figure
your meal expenses
when you travel in
connection with
investment and other
income-producing
property. You can
also use it to
figure your meal
expenses when you
travel for
qualifying
educational
purposes. You cannot
use the standard
meal allowance to
figure the cost of
your meals when you
travel for medical
or charitable
purposes.
Amount of standard
meal allowance.
The standard meal
allowance is the
federal M&IE rate.
The rate is $31 a
day for 2004, for
most small
localities in the
United States.
Most major cities
and many other
localities in the
United States are
designated as
high-cost areas,
qualifying for
higher standard meal
allowances.
Locations qualifying
for these rates are
listed in
Publication 1542.
You can also
find this
information on the
Internet at
www.gsa.gov,
click on “Per
Diem Rates,”
then click on “VISIT
NOW,” then on
“2004
Domestic Per Diem
Rates” for
the period January
1, 2004 — September
30, 2004, and “2005
Domestic Per Diem
Rates” for
the period October
1, 2004 — December
31, 2004. However,
you can apply the
rates in effect
before October 1,
2004, for expenses
of all travel within
the United States
for 2004 instead of
the updated rates.
You must
consistently use
either the rates for
the first 9 months
for all of 2004 or
the updated rates
for the period of
October 1, 2004,
through December 31,
2004.
If you travel to
more than one
location in one day,
use the rate in
effect for the area
where you stop for
sleep or rest. If
you work in the
transportation
industry, however,
see
Special rate for
transportation
workers, later.
Standard meal
allowance for areas
outside the
continental United
States.The standard
meal allowance rates
do not apply to
travel in Alaska,
Hawaii, or any other
locations outside
the continental
United States. The
federal per diem
rates for these
locations are
published monthly in
the
Maximum Travel
Per Diem Allowances
for Foreign Areas.
Your employer
may have these rates
available, or you
can purchase the
publication from
the:
Superintendent
of Documents
U.S. Government
Printing Office
P.O. Box 371954
Pittsburgh, PA
15250-7954
You can also
order it by calling
the Government
Printing Office at
1-202-512-1800 (not
a toll-free number).
Special rate for
transportation
workers.
You can use a
special standard
meal allowance if
you work in the
transportation
industry. You are in
the transportation
industry if your
work:
Directly
involves
moving
people or
goods by
airplane,
barge, bus,
ship, train,
or truck,
and
Regularly
requires you
to travel
away from
home and,
during any
single trip,
usually
involves
travel to
areas
eligible for
different
standard
meal
allowance
rates.
If this applies to
you, you can claim a
$41 a day standard
meal allowance ($46
for travel outside
the continental
United States) with
respect to meal and
incidental expenses
paid or incurred for
2004.
Using the special
rate for
transportation
workers eliminates
the need for you to
determine the
standard meal
allowance for every
area where you stop
for sleep or rest.
If you choose to use
the special rate for
any trip, you must
use the special rate
(and not use the
regular standard
meal allowance
rates) for all trips
you take that year.
Travel for days you
depart and return.
For both the day
you depart for and
the day you return
from a business
trip, you must
prorate the standard
meal allowance
(figure a reduced
amount for each
day). You can do so
by one of two
methods.
Method
1: You can
claim ¾ of
the standard
meal
allowance,
or
Method
2: You can
prorate
using any
method that
you
consistently
apply and
that is in
accordance
with
reasonable
business
practice.
Example.
Jen is employed
in New Orleans as a
convention planner.
In March, her
employer sent her on
a 3-day trip to
Washington, DC, to
attend a planning
seminar. She left
her home in New
Orleans at 10 a.m.
on Wednesday and
arrived in
Washington, DC, at
5:30 p.m. After
spending two nights
there, she flew back
to New Orleans on
Friday and arrived
back home at 8:00
p.m. Jen's employer
gave her a flat
amount to cover her
expenses and
included it with her
wages.
Under Method 1,
Jen can claim 2½
days of the standard
meal allowance for
Washington, DC: ¾ of
the daily rate for
Wednesday and Friday
(the days she
departed and
returned), and the
full daily rate for
Thursday.
Under Method 2,
Jen could also use
any method that she
applies consistently
and that is in
accordance with
reasonable business
practice. For
example, she could
claim 3 days of the
standard meal
allowance even
though a federal
employee would have
to use method 1 and
be limited to only
21/ days.
Travel in
the United
States
The following discussion
applies to travel in the
United States. For this
purpose, the United States
includes the 50 states and
the District of Columbia.
The treatment of your travel
expenses depends on how much
of your trip was business
related and on how much of
your trip occurred within
the United States. See
Part of Trip Outside the
United States,
later.
Trip
Primarily
for Business
You can deduct all
your travel expenses if
your trip was entirely
business related. If
your trip was primarily
for business and, while
at your business
destination, you
extended your stay for a
vacation, made a
personal side trip, or
had other personal
activities, you can
deduct your
business-related travel
expenses. These expenses
include the travel costs
of getting to and from
your business
destination and any
business-related
expenses at your
business destination.
Example.
You work in
Atlanta and take a
business trip to New
Orleans. On your way
home, you stop in
Mobile to visit your
parents. You spend
$1,070 for the 9
days you are away
from home for
travel, meals,
lodging, and other
travel expenses. If
you had not stopped
in Mobile, you would
have been gone only
6 days, and your
total cost would
have been $920. You
can deduct $920 for
your trip, including
the round-trip
transportation to
and from New
Orleans. The
deduction for your
meals is subject to
the 50% limit on
meals mentioned
earlier.
Trip
Primarily
for Personal
Reasons
If your trip was
primarily for personal
reasons, such as a
vacation, the entire
cost of the trip is a
nondeductible personal
expense. However, you
can deduct any expenses
you have while at your
destination that are
directly related to your
business.
A trip to a resort
or on a cruise ship may
be a vacation even if
the promoter advertises
that it is primarily for
business. The scheduling
of incidental business
activities during a
trip, such as viewing
videotapes or attending
lectures dealing with
general subjects, will
not change what is
really a vacation into a
business trip.
Part of Trip
Outside the
United
States
If part of your trip
is outside the United
States, use the rules
described later under
Travel Outside the
United States for that part of
the trip. For the part
of your trip that is
inside the United
States, use the rules
for travel in the United
States. Travel outside
the United States does
not include travel from
one point in the United
States to another point
in the United States.
The following discussion
can help you determine
whether your trip was
entirely within the
United States.
Public
transportation.
If you travel by
public
transportation, any
place in the United
States where that
vehicle makes a
scheduled stop is a
point in the United
States. Once the
vehicle leaves the
last scheduled stop
in the United States
on its way to a
point outside the
United States, you
apply the rules
under
Travel Outside
the United States.
Example.
You fly from
New York to
Puerto Rico with
a scheduled stop
in Miami. You
return to New
York nonstop.
The flight from
New York to
Miami is in the
United States,
so only the
flight from
Miami to Puerto
Rico is outside
the United
States. Because
there are no
scheduled stops
between Puerto
Rico and New
York, all of the
return trip is
outside the
United States.
Private car.
Travel by private
car in the United
States is travel
between points in
the United States,
even when you are on
your way to a
destination outside
the United States.
Example.
You travel by
car from Denver
to Mexico City
and return. Your
travel from
Denver to the
border and from
the border back
to Denver is
travel in the
United States,
and the rules in
this section
apply. The rules
under
Travel
Outside the
United States
apply to your
trip from the
border to Mexico
City and back to
the border.
Travel
Outside the
United States
If any part of your
business travel is outside
the United States, some of
your deductions for the cost
of getting to and from your
destination may be limited.
For this purpose, the United
States includes the 50
states and the District of
Columbia.
How much of your travel
expenses you can deduct
depends in part upon how
much of your trip outside
the United States was
business related.
See chapter 1 of
Publication 463 for
information on luxury water
travel.
Travel
Entirely for
Business or
Considered
Entirely for
Business
You can deduct all
your travel expenses of
getting to and from your
business destination if
your trip is entirely
for business or
considered entirely for
business.
Travel entirely for
business. If
you travel outside
the United States
and you spend the
entire time on
business activities,
you can deduct all
of your travel
expenses.
Travel considered
entirely for
business. Even
if you did not spend
your entire time on
business activities,
your trip is
considered entirely
for business if you
meet at least one of
the following four
exceptions.
Exception 1 - No
substantial control.
Your trip is
considered entirely
for business if you
did not have
substantial control
over arranging the
trip. The fact that
you control the
timing of your trip
does not, by itself,
mean that you have
substantial control
over arranging your
trip.
You do not have
substantial control
over your trip if
you:
Are an
employee who
was
reimbursed
or paid a
travel
expense
allowance,
Are not
related to
your
employer,
and
Are not
a managing
executive.
“Related
to your employer”
is defined later in
this chapter under
Related to
employer.
A “managing
executive” is
an employee who has
the authority and
responsibility,
without being
subject to the veto
of another, to
decide on the need
for the business
travel.
A self-employed
person generally has
substantial control
over arranging
business trips.
Exception 2 -
Outside United
States no more than
a week.
Your trip is
considered entirely
for business if you
were outside the
United States for a
week or less,
combining business
and nonbusiness
activities. One week
means seven
consecutive days. In
counting the days,
do not count the day
you leave the United
States, but do count
the day you return
to the United
States.
Exception 3 -
Less than 25% of
time on personal
activities.
Your trip is
considered entirely
for business if:
You were
outside the
United
States for
more than a
week, and
You
spent less
than 25% of
the total
time you
were outside
the United
States on
nonbusiness
activities.
For this purpose,
count both the day
your trip began and
the day it ended.
Exception 4 -
Vacation not a major
consideration.
Your trip is
considered entirely
for business if you
can establish that a
personal vacation
was not a major
consideration, even
if you have
substantial control
over arranging the
trip.
Travel
Primarily
for Business
If you travel outside
the United States
primarily for business
but spend some of your
time on nonbusiness
activities, you
generally cannot deduct
all of your travel
expenses. You can only
deduct the business
portion of your cost of
getting to and from your
destination. You must
allocate the costs
between your business
and nonbusiness
activities to determine
your deductible amount.
These travel allocation
rules are discussed in
chapter 1 of Publication
463.
You do not have
to allocate your travel
expense deduction if you
meet one of the four
exceptions listed
earlier under Travel
considered entirely for
business. In those
cases, you can deduct
the total cost of
getting to and from your
destination.
Travel
Primarily
for Personal
Reasons
If you travel outside
the United States
primarily for vacation
or for investment
purposes, the entire
cost of the trip is a
nondeductible personal
expense. If you spend
some time attending
brief professional
seminars or a continuing
education program, you
can deduct your
registration fees and
other expenses you have
that are directly
related to your
business.
Conventions
You can deduct your
travel expenses when you
attend a convention if you
can show that your
attendance benefits your
trade or business. You
cannot deduct the travel
expenses for your family.
If the convention is for
investment, political,
social, or other nonbusiness
purposes, you cannot deduct
the expenses.
Your appointment or
election as a delegate does
not, in itself, determine
whether you can deduct
travel expenses. You can
deduct your travel expenses
only if your attendance is
connected to your own trade
or business.
Convention agenda.
The convention agenda
or program generally
shows the purpose of the
convention. You can show
your attendance at the
convention benefits your
trade or business by
comparing the agenda
with the official duties
and responsibilities of
your position. The
agenda does not have to
deal specifically with
your official duties and
responsibilities; it
will be enoughif the
agenda is so related to
your position that it
shows your attendance
was for business
purposes.
Conventions held outside
the North American area.See chapter 1 of
Publication 463 for
information on
conventions held outside
the North American area.
Entertainment
Expenses
You may be able to deduct
business-related entertainment
expenses you have for
entertaining a client, customer,
or employee.
You can deduct entertainment
expenses only if they are both
ordinary and necessary (defined
earlier) and meet one of the
following two tests.
Directly-related
test.
Associated test.
Both of these tests are
explained in Publication 463.
The amount you can deduct
for entertainment expenses may
be limited. Generally, you can
deduct only 50% of your
unreimbursed entertainment
expenses. This limit is
discussed later under 50% Limit.
Club dues
and membership fees.
You cannot deduct dues
(including initiation fees)
for membership in any club
organized for:
Business,
Pleasure,
Recreation, or
Other social
purpose.
This rule applies to any
membership organization if
one of its principal
purposes is either:
To conduct
entertainment
activities for
members or their
guests, or
To provide
members or their
guests with access
to entertainment
facilities.
The purposes and
activities of a club, not
its name, will determine
whether or not you can
deduct the dues. You cannot
deduct dues paid to:
Country clubs,
Golf and
athletic clubs,
Airline clubs,
Hotel clubs, and
Clubs operated
to provide meals
under circumstances
generally considered
to be conducive to
business
discussions.
Entertainment.Entertainment includes
any activity generally
considered to provide
entertainment, amusement, or
recreation. Examples include
entertaining guests at
nightclubs; at social,
athletic, and sporting
clubs; at theaters; at
sporting events; on yachts;
or on hunting, fishing,
vacation, and similar trips.
You cannot deduct
expenses for entertainment
that are lavish or
extravagant. If you buy a
ticket to an entertainment
event for a client, you
generally cannot deduct more
than the face value of the
ticket, even if you paid a
higher price.
Gift or
entertainment.
Any item that might be
considered either a gift or
entertainment generally will
be considered entertainment.
However, if you give a
customer packaged food or
beverages that you intend
the customer to use at a
later date, treat it as a
gift.
If you give a customer
tickets to a theater
performance or sporting
event and you do not go with
the customer to the
performance or event, you
have a choice. You can treat
the cost of the tickets as
either a gift expense or an
entertainment expense,
whichever is to your
advantage.
You can change your
treatment of the tickets at
a later date by filing an
amended return. Generally,
an amended return must be
filed within 3 years from
the date the original return
was filed or within 2 years
from the time the tax was
paid, whichever is later.
If you go with the
customer to the event, you
must treat the cost of the
tickets as an entertainment
expense. You cannot choose,
in this case, to treat the
cost of the tickets as a
gift expense.
Separating costs.
If you have one expense
that includes the costs of
entertainment, and other
services (such as lodging or
transportation), you must
allocate that expense
between the cost of
entertainment and the cost
of other services. You must
have a reasonable basis for
making this allocation. For
example, you must allocate
your expenses if a hotel
includes entertainment in
its lounge on the same bill
with your room charge.
A meal
as a form of entertainment.
Entertainment includes the
cost of a meal you provide
to a customer or client,
whether the meal is a part
of other entertainment or by
itself. A meal expense
includes the cost of food,
beverages, taxes, and tips
for the meal. To deduct an
entertainment-related meal,
you or your employee must be
present when the food or
beverages are provided.
You cannot claim the cost
of your meal both as an
entertainment expense and as a
travel expense.
Taking
turns paying for meals or
entertainment.
If a group of business
acquaintances take turns
picking up each others' meal
or entertainment checks
without regard to whether
any business purposes are
served, no member of the
group can deduct any part of
the expense.
Trade
association meetings.You can deduct expenses
for entertainment that are
directly related to, and
necessary for, attending
business meetings or
conventions of certain
exempt organizations if the
expenses of your attendance
are related to your active
trade or business. These
organizations include
business leagues, chambers
of commerce, real estate
boards, trade associations,
and professional
associations.
Additional
information. For more
information on entertainment
expenses, including
discussions of the
directly-related and
associated tests, see
chapter 2 of Publication
463.
50% Limit
In general, you can
deduct only 50% of your
business-related meal and
entertainment expenses. (If
you are subject to the
Department of
Transportation's “hours
of service” limits,
you can deduct a higher
percentage. See
Individuals subject to “hours
of service” limits,
later.)
The 50% limit applies to
employees or their
employers, and to
self-employed persons
(including independent
contractors) or their
clients, depending on
whether the expenses are
reimbursed.
Figure 28-A summarizes
the general rules explained
in this section.
The 50% limit applies to
business meals or
entertainment expenses you
have while:
Traveling away
from home (whether
eating alone or with
others) on business,
Entertaining
customers at your
place of business, a
restaurant, or other
location, or
Attending a
business convention
or reception,
business meeting, or
business luncheon at
a club.
Included expenses.
Expenses subject to
the 50% limit include:
Taxes and
tips relating to
a business meal
or entertainment
activity,
Cover
charges for
admission to a
nightclub,
Rent paid
for a room in
which you hold a
dinner or
cocktail party,
and
Amounts paid
for parking at a
sports arena.
However, the cost of
transportation to and
from a business meal or
a business-related
entertainment activity
is not subject to the
50% limit.
Application of 50%
limit. The 50%
limit on meal and
entertainment expenses
applies if the expense
is otherwise deductible
and is not covered by
one of the exceptions
discussed later in this
section.
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