Defining Travel Expenses

Generally, deductible travel expenses are the ordinary and necessary expenses that you incur while you're away from home in pursuit of your trade or business. In order to claim travel expenses as deductions, you must keep adequate records and be able to prove the existence, amount, and business purpose of your expenses.

The following is a list of expenses you may be able to deduct depending on the facts and circumstances:

• 50 percent of the cost of meals when traveling (see discussion below)
• air, rail, and bus fares
• baggage charges
• cleaning and laundry expenses
• computer rental fees
• expenses of operating and maintaining a car, including the cost of gas, oil, lubrication, washing, repairs, parts, tires, supplies, parking fees, and tolls
• expenses of operating and maintaining RVs or housetrailers
• hotel expenses
• local transportation costs for taxi fares or other transportation between the airport or station and a hotel, from one customer to another, or from one place of business to another, and tips incidental to the foregoing expenses
• public stenographer or clerical fees
• telephone or fax expenses
• tips on eligible expenses
• transportation costs for sample and display materials and sample room costs

Meal costs when traveling. The cost of dining alone is a deductible expense only if your business trip is overnight or long enough to require that you stop for sleep or rest. (Of course, if you entertain business guests at home or away you may be able to deduct the cost, if you meet the usual deductibility rules for meals and entertainment). In any case, you can deduct only 50 percent of the cost of the meals.

A special exception to the 50 percent rule applies to workers who are away from home while working under Department of Transportation regulations. This group of workers includes air transportation employees, interstate truck and bus drivers, railroad employees, and merchant mariners. For these workers, meals will be 70 percent deductible in 2005, 75 percent deductible in 2006 and 2007, and 80 percent deductible in 2008 and thereafter.

Standard meal allowance. Assuming that you are traveling away from home for the required length of time, you may elect to deduct half of a Standard Meal Allowance (SMA), rather than half of the actual cost of your meals, laundry, cleaning and tips.

The standard meal allowance for the 2005 fiscal year (October 1, 2004, through September 30, 2005) is $31 a day for most areas in the U.S. Some locations in the U.S. are considered high-cost areas and qualify for higher rates of $35, $39, $43, $47, or $51 per day. For 2006 (October 1, 2005, through September 30, 2006) the standard meal allowance rates is increased to a basic rate of $39 per day, increasing to $44, $49, $54, or $64 per day in high-cost localities.

These per diem rates are updated periodically to reflect regional inflation and are published on the Internet at the General Service Administration web site and in IRS Publication 1542, Per Diem Rates (for Travel Within the Continental United States). Note that these sources also list a per diem rate that includes lodging as well as meals and incidentals, but this combined per diem is generally not available to self-employed people.

For travel in areas outside the continental U.S., you can use federal per diem rates that are published monthly by the government. The foreign per diem rates can be purchased from the Government Printing Office and are also available on the Internet from the State Department.

Tip The advantage to using the standard meal allowance is that you don't have to keep records of actual meal expenses, although you still have to keep records to prove the time, place, and business purpose of your travel. A disadvantage is that the standard meal allowances are not very generous. Chances are that your actual expenses, and therefore your deductions, would be larger.

Spouses and dependents. You may be wondering whether you can deduct the cost of bringing your spouse along on a business trip. The answer is generally no. For the travel expenses of a spouse (or dependent or any other individual for that matter) to be deductible, the spouse (or other individual) must also be an employee of the business. In addition, the spouse's travel must be for a bona fide business purpose and the expenses must be otherwise deductible by the spouse.