What Are Travel Expenses & What Qualifies?

Travel expenses are a common consideration for individuals and businesses, whether for budgeting, reimbursement, or tax purposes. Understanding what qualifies as a travel expense is important for managing financial obligations and business operations.

Defining Travel Expenses

A travel expense is the ordinary and necessary costs incurred while away from your tax home for business. Your tax home is the city or area of your main business location, not your personal residence. Expenses are recognized when duties require you to be away from this tax home long enough to need rest or sleep.

These expenses must be both ordinary, meaning common and accepted in your industry, and necessary, indicating they are helpful and appropriate for your business activity. They must not be lavish or extravagant, nor primarily for personal pleasure.

Common Categories of Travel Expenses

When traveling for business, several types of expenses typically fall under this category. Transportation costs are a major component, encompassing airfare, train tickets, bus fares, and car rental fees. If you use your personal vehicle, you can account for mileage. Additional transportation-related expenses like taxi or rideshare fares, tolls, and parking fees are also included.

Lodging expenses cover the cost of temporary accommodations such as hotel stays, motels, or other similar arrangements. Meals consumed while away from your tax home on business are also considered, though they are generally subject to certain percentage limitations. Incidental expenses cover smaller, necessary costs like tips, dry cleaning, laundry, business calls, and internet access.

Requirements for Deductibility

For travel expenses to be deductible, they must meet specific criteria. The expense must be “ordinary and necessary” for your business. Crucially, the travel must take you away from your tax home for a period requiring an overnight stay or rest to meet the demands of your work.

If a trip combines both business and personal activities, only the expenses directly attributable to the business portion are deductible. For instance, if you extend a business trip for a vacation, only the costs up to the point the business concluded would typically qualify. Business meals, while considered travel expenses, are generally only 50% deductible. You must substantiate these expenses, providing proof of their business purpose and amount.

Record-Keeping and Documentation

Maintaining accurate records of travel expenses is important for tax purposes or reimbursement. For each expense, you should record the amount, the time and place it was incurred, and its specific business purpose. This detailed documentation helps validate the legitimacy of your expenses.

Common methods for record-keeping include retaining all receipts, invoices, and credit card statements. For vehicle use, a mileage log detailing dates, destinations, and business miles driven is essential. These records should generally be kept for at least three years from the date you filed your original return or the due date of the return, whichever is later.