As an entrepreneur, freelancer, independent contractor you can claim tax deductions for your business travels. According to the IRS, if you wish to claim a travel expense deduction, your trip has to be:
To understand business travel expenses, it is important to differentiate between ordinary and necessary expenses-
To sum it up, business travel expenses are travel costs associated with running a business, or costs incurred when you are away from your tax home. You can claim business travel expenses when you're away from home but here, "home" doesn't refer to where your family lives. The “tax home” refers to the city where your main place of business is located- which may not be the same as the location of your family/residential home.
Your home office, downtown workspace, or where you live if you have multiple stores can be considered a tax home. However, there are special provisions for having more than one place of business.
To qualify for a business travel tax deduction, you need not fly first class or stay at a fancy hotel to claim travel expense tax deductions. Conferences, off-site business meetings, and worksite visits qualify as business travel and qualify for the business travel tax deduction.
When you’re self-employed, you’re bound to be on the lookout for ways to reduce your taxes. The good news is that you can deduct quite a few expenses while traveling, such as transportation, meals, lodging from your taxes.
Catching a flight to attend a conference or a business meeting is considered a business expense. Your airfare and precheck charges are all tax-deductible.
Any sort of transportation cost is a travel expense deduction, this includes flight, train, bus, or car. Moreover, the baggage fees are deductible, and so are Uber rides to and from the airport.
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 is also considered as a deductible.
Renting a car to attend a business trip counts as a travel expense deduction. The expenses of operating and maintaining a house trailer are also considered as a deductible, provided that using one is "ordinary" and "necessary" for your business
Hotels, Airbnb stays, or any other accommodation charges are tax-deductible lodging expenses.
You can deduct the amount of $5 per day for tips paid during your business excursion, these include:
When you’re traveling for work, you can write off 50% of all food expenses, this also includes groceries and takeouts.
Moreover, for the years 2021 and 2022, every meal you have at a restaurant is 100% tax-deductible.
WiFi or any other internet expenses, whether on a plane or at a hotel is completely deductible when you’re traveling for work. This also includes hotspots and international calls.
Any shipping charges are also tax-deductible.
You can avail of laundry and dry-cleaning services and get them deducted from your taxes.
Aside from these common expenses, there are a couple of expenses that you cannot deduct from your taxes. These include
Many small business travel expenses are tax-deductible. They don’t include personal expenses or ones used to determine your business’ cost of goods sold. Trips for pleasure can never be deducted.
If you drive your vehicle while heading out for a business trip, you can claim a deduction for your mileage and car expenses. Generally, there are two methods to claim the mileage tax deduction:
As mentioned above, any sort of transportation cost is deductible. This involves any business travel by airplane, train, bus, or car between your home and your business destination.
Similarly, fares for taxis or other types of ordinary and necessary expenses related to your business are eligible for travel expense deduction.
This can include transportation to and from a business meal, accountant or lawyer’s office, and operating and maintaining a house trailer.
As per the IRS, you can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. The following represent the rules set by the IRS:
If you fulfill the above criteria, then you can claim the travel expense tax deduction simply by opting for any of the following methods:
If you are paying for the travel expenses of subcontractors, it also helps you set up a limit to your potential expenses because they will have to pay the difference if they exceed your established daily allowance. On the flip side, if they spend less than your daily allowance, they will keep the difference.
The first method is a traditional itemized deduction approach- which requires receipts and bills for every expense and record-keeping of each category of your travel expenses. However, this can become tedious due to the significant amount of time and commitment needed to collect receipts and track expenses using software or a tax professional.
If you go for the second option- the daily allowance method, theoretically, you will spend less time record-keeping as long as your per day rate does not exceed the daily rate established by the federal government for its employees traveling to the same destination.
To keep your per-day payments free of tax obligations, each expense must have a detailed record of its date, place, and purpose. With this proof, you can deduct 100% of lodging and restaurant meals per day.
Regardless of which method you choose, every expense must serve a legitimate business purpose.
If you are self-employed, you can claim all your income tax deductions on Schedule C of Form 1040. Freelancers can often benefit by claiming travel expense deductions.
Tracking your travel expenses can be troublesome, but with FlyFin, you can reduce your tax burden. With the FlyFin app, you’ll get a detailed summary of all your travel-related expenses.
The A.I. can help you scan your transactions for business travel. It is the ideal app to help your figure out your freelance tax deductions.
The app will help you perform the calculations and provide you with an accurate tax amount since it is powered by AI and backed by CPAs whom you can consult to determine the right set of deductions. Plus, you can use FlyFin’s self-employed quarterly tax calculator to manage your quarterly taxes.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.