This post is not meant to be a comprehensive guide on all deductions that can be taken when traveling for business purposes. While there are certainly more expenses than those discussed below that can be deducted when traveling for business, this post is only focused on expenses that can be deducted by sole proprietors attending a domestic conference.
What Actually Constitutes Travel Expenses?
From IRS Publication 463
Travel expenses defined.
For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.
An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.
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.
Do note that that expense has to be ordinary and necessary.
This rest requirement isn’t satisfied by merely napping in your car. You don’t 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.
For attending a conference, this rest requirement is probably met with ease.
As for the definition of a 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.
In general, as a sole proprietor this will be your personal residence.
Which Expenses Are Deductible?
From IRS Pub 463, the business use of transportation, taxi, commuter bus, and airport limousine, baggage and shipping, car, lodging and meals, cleaning, telephone, tips, and miscellaneous other expenses are deductible.
From IRS Pub 463, the following transportation expenses are deductible while traveling for business.
Travel by airplane, train, bus, or car between your home and your business destination. If you were provided with a free 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, earlier, for additional rules and limits.
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.
Take note of how any travel booked using frequent flyer miles, or any similar program, cannot be deducted.
This may lead you to conclude that one should never book transportation for business travel using frequent flyer miles. However, in some instances, this is letting the tax tail wag the dog. Remember, a tax deduction is simply a coupon at your marginal tax rate; in general, this marginal tax rate for sole proprietors will most likely be in the 20-45% range. The sole proprietor still pays for a significant portion of the business expense out of pocket.
If, on average, you are able to collect more frequent flyer miles per year than you can spend per year, then it does not make sense to pay cash for your flight (or other travel) just for the sake of getting a deduction; you are lowering your tax bill, but still spending more overall while still not depleting your miles balance.
If, on the other hand, you often find yourself without enough miles to cover your trips, then it absolutely makes sense to save your miles for a personal trip, and use cash to pay for your travel to receive a deduction.
In General, Commuting Does Not Count
Again from Pub 463
Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. However, there may be exceptions to this general rule. You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Also, daily transportation expenses can be deducted if (1) you have one or more regular work locations away from your residence; or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance.
Based on the above, I do believe that if, for example, you lived in Northern Virginia and took the Washington Metro each day of a four day conference in DC, you could deduct these expenses (though of course these expenses are minimal).
The temporary work station exception only works if it is outside the metro area, for which DC and Northern Virginia are not.
From Pub 463
sending baggage and sample or display material between your regular and temporary work locations.
From Pub 463
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.
In 2019, the standard mileage rate is 58 cents/mile for business purposes.
In general, if you have an older car that has already taken the big depreciation hit, you will be better off using the standard mileage rate as opposed to tracking the actual car expenses. The 58 cents/mile figure is calculated using data on auto insurance premiums, gas prices, maintenance costs, depreciation, and other miscellaneous costs, and represents an average for all cars on the road. Depreciation is a significant portion of the cost of operating a vehicle; AAA puts it at 51.5%. Furthermore, it is far more effort to track all of your car expenses than to simpy track how far you drove.
For the reasons above, I won't be going into the details of what you can deduct if deducting your actual car expenses, but you can find them in Pub 463.
From Pub 463 you can deduct
your lodging and non-entertainment-related 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 , later, for additional rules and limits.
Later in Pub 463
You can deduct the cost of meals if it is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Meal and entertainment expenses are discussed in chapter 2.
Lavish or extravagant. You can't deduct expenses for meals that are lavish or extravagant. An expense isn't considered lavish or extravagant if it is reasonable based on the facts and circumstances. Meal expenses won't be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels, or resorts.
Keep the meals reasonable.
Do note that in general you can only deduct 50% of your meals. Pub 463 states
50% limit on meals.
You can figure your meals expense using either of the following 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.
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 publication, "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 the recordkeeping rules for travel in chapter 5.
Fortunately you do not have to keep records of the actual meals if you elect to use the standard meal allowance method, which I find to be generous. Additionally, to the best of my knowledge, you can use the standard meal allowance even if you were able to find food for free (this is different from if your conference ticket included the cost of some meals. These costs should be separated - see a later section).
What is the standard meal allowance? Pub 463 states
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.
Federal government's fiscal year. Per diem rates are listed by the federal government's fiscal year which runs from October 1 to September 30. You can choose to use the rates from the 2018 fiscal year per diem tables or the rates from the 2019 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. See Transition Rules , later.
Standard meal allowance for areas outside the continental United States.
The standard meal allowance rates above don’t apply to travel in Alaska, Hawaii, or any other location outside the continental United States. The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U.S. Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. The Department of State establishes per diem rates for all other foreign areas.
The rates can be found here. For example, it is currently $76/day in DC.
There are some exceptions to the 50% limit, which don't apply for my intended audience but you can read more about them here.
From Pub 463:
There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost.
It is reasonably safe to assume that like the use frequent flyer miles, the use of hotel loyalty points cannot be deducted. See the section on transportation for a discussion on when you might still want to use hotel loyalty points anyways.
From Pub 463
tips you pay for any expenses in this chart.
This chart refers to any of the previously mentioned expenses.
From Pub 463
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.
Mixing Personal and Business Expenses
From Pub 463
Trip Primarily for Business
You can deduct all of 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 only 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.
You work in Atlanta and take a business trip to New Orleans in May. Your business travel totals 900 miles round trip. On your way home, you stop in Mobile to visit your parents. You spend $2,165 for the 9 days you are away from home for travel, non-entertainment-related meals, lodging, and other travel expenses. If you hadn’t stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,633.50. You can deduct $1,633.50 for your trip, including the cost of round-trip transportation to and from New Orleans. The deduction for your non-entertainment related meals is subject to the 50% limit on meals mentioned earlier.
In short, separate out the business and personal expenses, and only deduct the business expenses.
Tracking Your Expenses
From Pub 463
When you travel away from home on business, you must 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 5-1 (see chapter 5).
Below is Table 5-1
You can’t deduct amounts that you approximate or estimate.
You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You must generally prepare a written record for it to be considered adequate. This is because written evidence is more reliable than oral evidence alone. However, if you prepare a record on a computer, it is considered an adequate record.
What Are Adequate Records?
You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense.
You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses.
What constitutes adequate evidence? Pub 463 states
Adequate evidence. Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense.
For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information.
- The name and location of the hotel.
- The dates you stayed there.
- Separate amounts for charges such as lodging, meals, and telephone calls.
A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information.
- The name and location of the restaurant.
- The number of people served.
- The date and amount of the expense.
If a charge is made for items other than food and beverages, the receipt must show that this is the case.
In short, keeping receipts will be sufficient. If you don't have a receipt, you may be able to use other evidence.
What If I Don't Have the Records?
Pub 463 addresses this
What if I Have Incomplete Records?
If you don’t have complete records to prove an element of an expense, then you must prove the element with:
- Your own written or oral statement containing specific information about the element, and
- Other supporting evidence that is sufficient to establish the element.
If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Documentary evidence can be receipts, paid bills, or similar evidence.
Hopefully you won't find yourself in this situation. Keeping receipts is a lot simpler.
You must keep timely records
Timely kept records.
You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. A timely kept record has more value than a statement prepared later when generally there is a lack of accurate recall.
You don’t need to write down the elements of every expense on the day of the expense. If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely kept record.
If you give your employer, client, or customer an expense account statement, it can also be considered a timely kept record. This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record.
For example, if you drove to a conference, you should log the miles driven within a reasonable time period after the drive, e.g. a week. Looking up the distance in Google Maps when filing your taxes does not constitute timely documentation.
Fortunately, there are some exceptions to the record keeping requirements.
Exception. Documentary evidence isn’t needed if any of the following conditions apply.
- You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. (Accountable plans and per diem allowances are discussed in chapter 6.)
- Your expense, other than lodging, is less than $75.
- You have a transportation expense for which a receipt isn’t readily available.
You can rely on the standard per diem allowance rate for meals, and any non lodging expense less than $75 doesn't require documentation.
If you have one expense that includes the costs of non-entertainment-related meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of non-entertainment-related 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.
As I mentioned earlier, if you bought a conference ticket that included some meals, you are required to separate out the costs of the meals before deducting the cost of the ticket.
How to Report Expenses on Your Taxes
Pub 463 states
You must report your income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. You don’t use Form 2106.
If you claim car or truck expenses, you must provide certain information on the use of your vehicle. You provide this information on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Form 4562.
If you file Schedule C (Form 1040):
- Report your travel expenses, except meals, on line 24a;
- Report your deductible non-entertainment-related meals (actual cost or standard meal allowance) on line 24b;
- Report your gift expenses and transportation expenses, other than car expenses, on line 27a; and
- Report your car expenses on line 9. Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization.
If you file Schedule C-EZ (Form 1040), report the total of all business expenses on Part II, line 2. You can include only 50% of your non-entertainment-related meals in that total. If you include car expenses, you must also complete Part III of the form.
If you file Schedule F (Form 1040), do the following.
- Report your car expenses on line 10. Attach Form 4562 and provide information on the use of your car in Part V of Form 4562.
- Report all other business expenses discussed in this publication on line 32. You can only include 50% of your non-entertainment-related meals on that line.
Of course, if you use tax software, it will handle this for you.