Do you travel for work? Does your employer make you pay for some of your expenses?
Don’t simply suffer with the cost of airport food—deduct it instead. It’s a common misconception that only business owners can deduct the cost of their travel. If you’re one of the many people who think that only big guys get tax breaks, think again. Employees and contractors can take the travel expense deduction too.
To claim the deduction, you have to cross a couple of preliminary hurdles. First, your business trip must be long enough that you need to eat and sleep in order to meet the demands of your job. Napping in your car at a McDonald’s (Stock Quote: MCD) parking lot between Chicago and Milwaukee doesn’t count, but your typical overnight trip to the Denver office does. Second, in order to claim the deduction, your trip must relate to your work. If you do some sightseeing in the evening, don’t worry; your travel expenses will still be deductible. But if you take a two-week wine tasting tour and sneak a dental conference into the middle, you really shouldn’t claim the deduction.
So let’s say that you took a legitimate business trip and stayed overnight. What expenses can you deduct? All of your usual travel costs are included, so save your Southwest receipt (Stock Quote: LUV) and the Marriott bill (Stock Quote: MAR). If you drove to your destination instead, you can deduct the standard mileage rate. But don’t forget to keep track of less obvious expenses. Your employer is not as likely to reimburse you for things like tips, dry cleaning, laundry and lodging taxes, but all of those expenses are deductible. Finally, you can deduct 50% of the cost of your meals, so go ahead and hit Morton’s (Stock Quote: MRT) for some prime-aged beef.
If you’re a cheap date, you should claim the standard meal allowance instead. It’s a daily amount set by the IRS, and it varies by location. For 2008, it was $39 a day or more, and you can find the rate for your favorite city at the IRS web site (pdf).
Finally, a word about employer reimbursements. If your employer has an “accountable plan” for travel reimbursements, you can only deduct the part of your travel cost that exceeds the reimbursement amount. This is because the IRS does not tax your reimbursement amount. In contrast, if your employer’s reimbursement plan is not an accountable plan, the IRS will treat the amount of your reimbursement as taxable income to you. That’s a scary thought, but don’t worry, you can deduct all of your travel costs, including the ones covered by the reimbursement. Your human resources manager can tell you which sort of plan your employer uses. Ask about it now so that you can take full advantage of the deduction without running into audit trouble later.
If you found yourself on the road in 2008, take heart. Your out-of-pocket expenses aren’t lost. You can bring some of your hard-earned cash home again by taking the travel expense deduction. And if you like that one, check out our tax tips on other unreimbursed business expenses. Who knows? You just might save a bundle.
Be sure to check out the complete archive of Daily Deductions.