Self-employed individuals or business owners often require to travel for work-related issues. And when you are required to travel frequently for the benefit of your enterprise, it’s only natural that travel costs will make up a significant portion of your total expenses. Thankfully, the IRS offers some specific tax breaks to self-employed individuals who need to travel from time to time.
According to the IRS, “travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.” If you are required to travel away from your tax home area for a significant amount of time, (that is, when it exceeds the time limits for a day’s work) and you need to sleep it off in another city or town, then the travel costs you incur during such trips are tax deductible. The term ‘tax home’ denotes the general area where your business is based or the entire area covered by your business irrespective of where your home is.
Here’s a list of travel expenses that are eligible for tax deduction:
- Ticket costs of airplane, train, or bus, to travel from your home to your business destination. However, if you are traveling with a free ticket due to being a frequent traveler or any other similar offer, it is not regarded as a tax deductible expense.
- Cab fares or any other transportation costs to travel to and fro from the airport/train station to your hotel; from the hotel to the location of your business meeting, and from one business destination to another.
- Fuel costs of using your personal car while traveling from one place to another or from one customer to another in your business destination. You can either deduct the actual expenses or you can opt for the standard mileage rate deduction which is 53.5 cents/mile. Apart from this, you can also deduct toll and parking fees.
- Shipping costs related to samples or work-related baggage between work locations (both regular and temporary).
- Costs incurred for making business calls during a business trip. Apart from phone bills, it also includes costs for fax communications.
- Accommodation and lodging.
- Dry cleaning and laundry.
- Tips paid to avail any of the above-mentioned services.
One should keep in mind that the deduction for costs related to meals during business trips is limited to 50% of the unreimbursed cost. In case you are job hunting in the present line of your work and you have been traveling for the same, you are allowed to deduct the meal and lodging costs you incurred in the process. But you should know that this is just a one-time thing – if you have availed it once, you cannot deduct travel expenses while looking for a new job for the second time.
While the IRS allows you to deduct the travel expenses associated with a temporary project away from your tax home, you cannot deduct the travel expenses for any assignment that is stretched for an indefinite time period (any project that may take more than a year is regarded as indefinite).
Self-employed individuals have three options to deduct business-related travel expenses:
- Form 2106 (Employee Business Expenses),
- Form 2106-EZ (Unreimbursed Employee Business Expenses), and,
- Form 1040, Schedule A (Itemized Deductions).
If you wish to avail tax deductions on business-related travel expenses, you must maintain an organized record of all your receipts that can prove your claims to be true. This includes phone bills, eating costs, cab fares, parking fees, and so on. For the IRS, documentation is of prime importance, and hence, you should be able to show that whatever costs you have claimed for deductions are both ordinary and necessary expenses in your line of work.
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