As a freelance business owner, if you travel for work to attend conferences or see clients related to your business, you are generally eligible to subtract any ordinary and necessary expenses you incurred such as transportation, airfare, meals, and accommodations.
While you can’t directly deduct the expense of bringing friends and family on business trips, some costs can be offset indirectly. Some examples:
Driving to your destination
Have three or four empty seats in your car? Feel free to fill them. As long as you’re traveling for business, and renting a vehicle is a “necessary and ordinary” expense, you can still deduct your business mileage or car rental costs even when others join you for the ride.
One exception: If you incur extra mileage or “unnecessary” rental costs because you bring your family along for the ride, the expense is no longer deductible because it isn’t “necessary or ordinary.”
For example, let’s say you had to rent an extra-large van to bring your children on a business trip. If you wouldn’t have needed to rent the same vehicle to travel alone, the expense of the extra-large van no longer qualifies as a business deduction.
Renting a place to stay
Similar to the driving expense, you can only deduct lodging equivalent to what you would use if you were traveling alone.
However, there is some flexibility. If you pay for lodging to accommodate you and your family, you can deduct the portion of lodging costs that is equivalent to what you would pay only for yourself.
For example, let’s say a hotel room for one person costs $100, but a hotel room that can accommodate your family costs $150, You can rent the $150 option and deduct $100 of the cost as a business expense—because $100 is how much you’d be paying if you were staying there alone.
This deduction has the potential to save you a lot of money on accommodation for your family. Just make sure make sure you hold on to receipts and records that state the prices of different rooms, in case you need to justify the expense to the IRS.
Heads up. When it comes to AirBnB, the lines get blurry. It’s easy to compare the cost of a hotel room with one bed to a hotel room with two beds. But when you’re comparing significantly different lodgings, with different owners—a pool house versus a condo, for example—it becomes hard to justify deductions. Sticking to “traditional” lodging like hotels and motels may help you avoid scrutiny during an audit. When in doubt: ask your tax professional.
Is your trip technically a vacation? You can still claim any business-related expenses.
The moment your getaway crosses the line from “business trip” to “vacation” (e.g. you spend more days relaxing on the beach than closing deals) you can no longer deduct business travel expenses.
Generally, a “vacation” is:
- A trip where you don’t spend the majority of your days doing business.
- A business trip you can’t back up with correct documentation.
However, you can still deduct regular business-related expenses if you happen to conduct business while you’re on vacation.
For example, say you visit Portland for fun, and one of your clients also lives in that city. You have a lunch meeting with your client while you’re in town. Because the lunch is business related, you can write off 50% of the cost of the meal, the same way you would any other business meal. Just make sure you keep the receipt.
Meanwhile, the other “vacation” related expenses that made it possible to meet with this client in person—plane tickets to Portland, vehicle rental so you could drive around the city—cannot be deducted; the trip is still a vacation.
If your business travel is with your own vehicle.
There are two ways to deduct business travel expenses when you’re using your own vehicle.
- Actual expenses method
- Standard mileage rate method
Actual expenses are when you total up the actual cost associated with using your vehicle (gas, insurance, new tires, parking fees, parking tickets while visiting a client etc.) and multiply it by the percentage of time you used it for business. If it was 50% for business during the tax year, you’d multiply your total car costs by 50%, and that’d be the amount you deduct.
Standard mileage applies when you keep track of the business miles you drove during the tax year, and then you claim the standard mileage rate.
What to know about tax deductions for business travel
Business travel deductions are available for certain people who travel away from their home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day’s work and they need to sleep in a location other than their home to meet the demands of their work while away.
Travel expenses must be ordinary and necessary.
Necessary expenses are deductible for business travel, but they really can’t be lavish, extravagant or for personal purposes. Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment is less than one year.
Travel expenses for conventions are deductible if attending them benefits the business. There are special rules for conventions held outside of North America, so if you are going abroad, you can read up on them here.
Deductible travel expenses include:
- Travel by plane, train, bus or car between home and a business destination
- Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location
- Shipping of baggage and sample or display material between regular and temporary work locations
- Using a personally owned car for business
- Lodging and meals
- Dry cleaning and laundry
- Business calls and communication
- Tips paid for services related to any of these expenses
- Other similar ordinary and necessary expenses related to the business travel
Recordkeeping is important
Remember, it’s not only easier to prepare a tax return with proper records, it will save you a lot of time in the process. It is essential to keep records including dates, times, purpose of your travel, who you ate your meals with for business purposes and all receipts to support a deduction in the event that you get audited.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, www.cpaforfreelancers.com — which also features a blog, how-to articles, and a comprehensive freelance tax guide. Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation, you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.