Expenditures – Part 4 – Travel Away From Home
Expenditures – Part 4 –Travel Away From Home
In previous installments of our series regarding expenditures we discussed some basic principles regarding expenditures including “travel expenses related to the property or management thereof.” The most recent article concerned local travel. In this article we will discuss another issue regarding travel, specifically expenses related to travel away from home.
The IRS says you are traveling away from home if:
- Your duties require you to be away from the general area of your tax home (as defined) substantially longer than an ordinary day’s work, and
- You need to sleep or rest to meet the demands of your work while away from home.
To determine if you are traveling away from home, you must first determine the location of your tax home using criteria specified by the IRS. Generally, your tax home is your regular place of business no matter where you maintain your family home.
As stated in a previous article of this series, you can deduct the ordinary and necessary expenses of traveling if the primary purpose of the trip was to collect rental income or to manage, conserve, or maintain your rental property. In review, an ordinary expense is one that is common and accepted in your industry and a necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. For a landlord, such travel may be necessary for a number of reasons including:
- To attend out-of-area education related to your business,
- To purchase equipment or materials related to your business that are not locally available or can be purchased elsewhere at a lower enough price that the travel time and expense are justified, or
- To check on rental properties are that are located in a distant location. Even when a property management company takes care of day-to-day management for a distant property, the owner should put in occasional appearances at the distant property in order to inspect the property and to meet with management company personnel.
As also previously stated, you must properly allocate your expenses between business and personal activities. This is particularly important when traveling out of the area of your residence, when landlords would sometimes like to be
accompanied by family members or engage in personal activities during the travel.
If a spouse or other family member or another individual accompanies you on a business trip you generally cannot deduct his or her travel expenses. However, when a husband and wife travel together, the expenses of both will be
deductible as long as both spouses materially participate in operation of the business and both participate in business being conducted on the specific trip. However, when one spouse does not usually otherwise materially participate in
the business or does not participate in the business related to the specific trip, the IRS does not allow deduction of all expenses related to the non-participant spouse.
If an employee or business associate accompanies you, you can deduct the cost if the person (1) has a bona fide business purpose for the travel and (2) would otherwise be allowed to deduct the travel expense
When landlords utilize their personal automobiles for out-of-area travel, they need to follow the same procedures as when using them for local travel that were discussed in Part 3 of this series. The most important items are maintaining a mileage log and retaining receipts related to the trip. It is also highly recommended that an extemporaneous record be maintained for all aspects of the trip, including both those directly related to the business purpose of the trip and those that were used to fill in between business activities. The latter may be attending an evening movie, browsing in the local mall, or other activity used to fill otherwise wasted time. The government does not expect a travelling business person to spend all waking hours attending to business, so attending an evening movie after a day of conducting business should not affect the deductibility of the day’s expenditures (other than the movie cost).
Even one or more non-business days sandwiched between two business days will not necessarily prohibit one from deducting all expenses of the trip. For example, when business is done prior to a weekend and again following the weekend, the lodging expenses related to the weekend days will usually be fully deductible. However, if one day is spent doing business, a week is spent visiting nearby relatives or participating in some other activities not related to the business,
and another day is spent doing business, expenses related to the week of personal activities are generally not deductible unless there are special reasons that justify the schedule.
If one drove a vehicle a distance of two days drive away for a particular meeting and needed to meet with the same or another party in the same area a week later or along the way at a location still a significant distance from home, it could
probably be justified that it was more reasonable, perhaps even significantly less costly to make a side trip during the week between meetings rather than return home and make a separate trip.
If you have one expense that includes another expense that is treated differently tax-wise, you must separate expenses. For example, only 50 percent of meals and entertainment expenditures are deductable, so if the hotel includes one or more meals in the room charge you must allocate the cost between meals and lodging, doing so in a reasonable way.
If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can only deduct the business-related travel expenses,
but this can usually include the total cost of transportation to and from the location where business was transacted and all expenses directly related to the business portion of the trip.
A trip to a resort or on a cruise ship may be considered a personal trip even though the promoter advertises it to be primarily for business. The scheduling of incidental business-related activities during the trip, such as viewing videos
or attending lectures on general business subjects, will not change what is really a vacation into a business trip. We will discuss the specific case of educational cruise travel in a future article.
If you travel outside the United States and spend the entire time on business activities, you can deduct all of your travel expenses. If you do not spend your entire time on business activities, it becomes more complicated and the part of
the costs that will be deductible depends on a number of factors. There are also special rules related to travel outside the North American area, with this area being specifically defined. Further discussion of travel outside the United States
is beyond the scope of this article.
This article has covered certain basic issues related to business travel away from home. Considerably more detail regarding the covered issues and discussions of still other issues related to travel away from home can be found in IRS Publication 463.