Deducting Your Travel Expenses
If you are commuting or traveling for business, the IRS will normally allow you to list travel expenses in your itemizations. Whether the expense was incurred locally or globally, you can still deduct a portion. Nonetheless, knowing when deductions are allowed and how much to deduct can prove difficult.
If your employer is reimbursing your expenses, you are not allowed to deduct them. Employers are also allowed to pay “per diem” rates per month. You cannot deduct more than the per diem rate per day from your taxes. This rate fluctuates based on the city. Current rates are $172 per day for any low-cost locality and $259 for any high cost locality. This includes the cost of lodging, meals and incremental expenses. Instead of reimbursing employees for actual business expenses, employers can choose to reimburse employees for these amounts. The first and last day of the trip are reimbursed at 75% of the per diem rate.
If you are commuting locally you can deduct transportation costs such as your car, public transportation or rental cars. Local meals (or incidentals) are not counted as travel expenses. However, you may be able to deduct meals as an “entertainment expense.” To do this, you must keep your receipts, the meal must be directly related to your business and it must not be “lavish or extravagant”.
If you are traveling around the United States (or world) for business, you are allowed to deduct all travel fees. This includes things such as fares, rental cars, dry cleaning, tips, etc. You can also deduct all expenses incurred for lodging. Meals and entertainment remain the exception and are limited to a 50% deduction.
The most important thing for deducting travel expenses is to remember to keep receipts. The IRS often requires substantiation to prove the business purpose of an item. If you fail to show that the expense dealt with your business, they may disallow it. However, if you keep careful records you may stand to save some money on your taxes.