How to Deduct Business Travel: Trips Abroad
Welcome back to our series on business travel deductions. If you haven’t already perused the first and second posts of the series, you might want to pause and take a look.
For tax purposes, there are three types of business trips: trips within the United States, trips outside the United States that last no more than a week, and trips outside the US that last longer than a week. Each of these types of business trip has slightly different rules about what you can and can’t deduct. We’ve already covered business travel within the US in the last post, so now let’s consider what you can and can’t do when traveling abroad.
Business travel abroad: one week or less
If your business trip takes you anywhere but the 50 states and/or the District of Columbia, the IRS considers it business travel outside the US.
On such a trip, you can’t deduct expenses for any day that was spent in nonbusiness activities. Note that you don’t have to spend every single minute of the day on business for it to qualify as a business-related day. If you were required at some point to be somewhere for business reasons, it counts.
Note that the one-week limit on foreign travel only applies to time that you spend outside the US. If your business trip lasts for 10 days but four of those days were spent within the US, you still qualify to use the one-week rules.
Business travel abroad: more than a week
When you spend longer than a week outside the US and the entire trip is devoted to business activities, you can deduct all your travel expenses. Things get a little more complicated if you spend part of your trip on business and part on personal activities.
The IRS provides three different sets of rules based on whether your trip was entirely business, mostly business, or mostly personal. If you spend less than 25% of the trip on personal activities, you can still call the trip entirely business (and yes, I know that’s weird – but if IRS rules made sense, you wouldn’t need tax pros like me).
If your trip qualifies as entirely business, you can use the same rules as for foreign trips lasting one week or less. See the above section “Business travel abroad: one week or less” for the skinny on what you can and can’t deduct on such a trip.
A trip abroad that’s “mostly business” is one where you spend between 25% and 50% of the time on personal activities. In that case, you can only deduct a percentage of your transportation costs – which is the same as the percentage of the trip you spent on business.
For example, if you were outside the US for 10 days during your trip and three of those days were spent sightseeing while the other seven qualified as business days, that means your trip was 70% business and 30% personal. In that case, you could deduct 70% of the cost of your plane tickets there and back. You could also deduct all of the hotel charges for the seven days you spent on business stuff, but not the hotel charges for the other three days.
Naturally, there are some tricky rules for figuring out what is and isn’t a “business day.” A day that meets any one of the following qualifications counts as a business day:
any day you spend traveling,
any day where at some point you are required to be somewhere for a business purpose (i.e. a meeting), and
any weekend or holiday that falls in between two business days.
Spend most of the trip on personal activities, and you can forget about deducting travel expenses. The only deductions you can claim on such a trip are the ones that directly relate to your business.
For example, if you buy a piece of equipment for your company, you can deduct the cost of the equipment as normal. You could also deduct the fee you pay to attend a conference or other such event, if you can prove the event is related to your business.
Time for a break, and then it’s on to the fourth and final segment of this blog series: how to claim your business travel deductions on your tax return. See you soon!