Proving Travel Expenses after Tax Reform
As you likely know by now, your travel meals continue under tax reform as tax-deductible meals subject to the 50 percent cut. And tax reform did not change the rules that apply to your other travel expense deductions.
One beauty of being in business for yourself is the ability to pick your travel destinations and also deduct your travel expenses. For example, you can travel to exotic locations using the seven-day travel rule and/or attend conventions and seminars in boondoggle areas. From these examples, you can understand why the IRS might want to see proof of your business purpose for any trips, should it examine them.
With deductions for lodging, a meal, or other travel expenses, the rules governing receipts, business reasons, and canceled checks are the same for corporations, proprietorships, individuals, and employees. The entity claiming the tax deduction must keep timely records that prove the four elements listed below:
- Amount. The amount of each expenditure for traveling away from home, such as the costs of transportation, lodging, and meals.
- Time. Your dates of departure and return, and the number of days on business.
- Place. Your travel destination described by city or town.
- Business purpose. Your business reason for the travel, or the nature of the business benefit derived or expected to be derived.
When in tax-deductible travel status, you need a receipt, a paid bill, or similar documentary evidence to prove
- every expenditure for lodging, and
- every other travel expenditure of $75 or more, except transportation, for which no receipt is required if one is not readily available.
The receipt you need is a document that establishes the amount, date, place, and essential character of the expenditure.
Hotel example. A hotel receipt is sufficient to support expenditures for business travel if the receipt contains
- the name of the hotel,
- the location of the hotel,
- the date, and
- separate amounts for charges such as lodging, meals, and telephone.
Restaurant example. A restaurant receipt is sufficient to support an expenditure for a business meal if it contains the
- name and location of the restaurant,
- date and amount of the expenditure, and
- number of people served, plus an indication of any charges for an item other than meals and beverages, if such charges were made.
You can’t simply use your credit card statement as a receipt. Like a canceled check, it proves only that you paid the money, not what you purchased. To prove the travel expenditure, you need both the receipt (proof of purchase) and the canceled check or credit card statement (proof of payment).
In a nutshell, a travel expense is an expense of getting to and from the business destination and an expense of sustaining life while at the business destination. Here are some examples from the IRS:
- Costs of traveling by airplane, train, bus, or car between your home and your overnight business destination
- Costs of traveling by ship (subject to the luxury water travel rules and cruise ship rules)
- Costs of renting a car or taking a taxi, commuter bus, or airport limo from the airport to the hotel and to work destinations, including restaurants for meals
- Costs for baggage and shipping of business items needed at your travel destination
- Costs for lodging and meals (meal costs include tips to waiters and waitresses)
- Costs for dry cleaning and laundry
- Costs for telephone, computer, Internet, fax, and other communication devices needed for business
- Tips to bellmen, maids, skycaps, and others
The travel deduction rules are the same whether you operate your business as a corporation or a proprietorship, with one important exception. When you operate as a corporation during the tax years 2018 through 2025, you must either
- have the corporation reimburse you for the expenses, or
- have the corporation pay the expenses.