Travel & Transportation

1. What are the basic rules and limitations regarding the deductibility of travel expenses?

A travel expense must be ordinary and necessary, incurred while away from home, and incurred in the pursuit of business.

The expenses must be reasonable. In other words, the expenses cannot be “lavish or extravagant.” Travel expenses include costs of meals and lodging expenses incurred during the travel and additional rules apply to these specific items.

Also, the expenses must be incurred in connection with an existing business or the expansion of an existing business. Therefore, a deduction is not allowed for travel expenses incurred to acquire or to enter a new business.

When a personal automobile is used for business, additional restrictions may apply:

    1. All the expenses must be allocated between business use and nondeductible personal use.
    2. As an employee, use of your personal automobile is treated as business use only if that use is for the convenience of your employer and required as a condition of your employment.

2. If a business travel includes some personal activity, how does a deduction rule apply to travel expenses to and from another destination?

To be deductible, a main purpose of the travel should be for business activities. If the trip is primarily for personal activities, travel expenses to and from that destination are not deductible.

However, we see that a business trip to foreign country often includes some packages for personal activities. In this case, expenses related to travel to and from a foreign destination must be allocated between business and personal activities. The personal component is not deductible. If you travel domestically, this allocation rule does not apply.

3. Is the local transportation cost of traveling between the taxpayer’s residence and his principal place of business deductible?

No. This is a commuting expense and is not deductible.  If a taxpayer has his place of business in his or her home, the taxpayer can deduct the cost to the client’s or customer’s place of business.  If a taxpayer has no regular place of business and no office in his or her home, the travel to his first business contact is considered commuting.

4. Is transportation expense from your home to temporary work locations deductible?

Yes.  If you have a regular place of work and sometimes travel directly from your home to temporary work locations, you can deduct the round-trip expense from your home to temporary work locations regardless of distance.

5. What documentation is required in order for travel and transportation expenses to be deductible?

In order to deduct travel expenses, you must comply with strict substantiation requirements for travel (and meals and lodging occurred during the travel).

Adequate records or sufficient evidence should be maintained for “each travel”:

    1. amount of travel and transportation expense,
    2. its time and place,
    3. its business purpose, and
    4. business relationship to the persons (if any) joined

You can deduct actual expenses incurred as a result of the business use of your vehicle. Deductible items include gas, oil, tolls, parking fees, insurance, and depreciation (if you own the car) or rent (if you lease the car).

Instead of figuring actual expenses, you can use the standard mileage rate, which is 53.5 cents per mile for travel during 2017.

6. How can I record vehicle business mileage log?

If you use your car for business purposes, you can deduct car expenses using one of the two methods: Standard mileage rate and Actual car expense method.  Regardless which method you use, you should keep a vehicle mileage log and save documentary evidence such as receipts.  A vehicle mileage log should contain following elements: date of travel, mileage traveled (including odometer reading), destination and purpose.  Please see the example of a vehicle mileage log sheet.

Vehicle Mile Log