As I mentioned in previous posts on deducting travel expenses, transportation costs to and from your business travel destination are governed by rules separate from On-the-Road Expenses. Transportation costs include the expenses you incur traveling to and from your destination. These costs include gasoline, airfare, train fare, etc. In order to deduct these expenses you must take one of three kinds of busi-ness trips, each one being governed by a separate set of rules:
- Foreign Business Trips
- U.S. Business Trips
- Convention Trips
Rules that Govern Transportation Deductions for Foreign Business Trips
Suppose you want to take a business trip to Montreal, Canada because you speak French and know that you can find prospective business there. But while there you also want to have some fun. So, you decide to spend one day doing business and the other five days having fun. How much of the transportation costs for that six-day trip to Montreal will be tax deductible? The IRS helps you determine this by answering the following questions:
- Is this a business trip? Yes (you will have shown your intent to do business before the trip by contacting in writing people with which you wish to do business while in Montreal).
- Is this a trip to a business convention or seminar? No.
- Is Montreal outside of the 50 United States? Yes.
- Is the trip to be less than one week excluding the day of departure? Yes (because you will be gone 6 days total).
In this case, transportation expenses to and from your business destination to Montreal are 100 percent tax deductible! Aren’t you glad to know that you can spend just one day doing business in Montreal and spend another five days enjoying yourself while deducting all of the transportation costs to and from Montreal? This is known as the exciting “one-week loophole.” Remember…
If you are on a foreign business trip and you return in less than one week, you can deduct 100 percent of your transportation regardless of the number of days worked.
Okay, let’s consider a different scenario. Let’s say you don’t want to come back in less than one week. Instead, you want to conduct your business in Montreal on one day and then go to Prince Edward Island for the remaining nine days and have fun. How much of your transportation costs can you deduct?
Here are the parameters of your trip:
- It is a business trip (because you have documented this in writing as noted above).
- It is not a convention or seminar.
- It is outside the 50 United States.
- It will takes more than one week.
Now ask yourself the following: Were less than 75 percent of the days spent on business, including travel days? How do you answer this? Well, for starters, don’t forget when calculating time spent on actual business that you may count the days traveling to and from your destination as “business days.” So, in this case, it takes you one day to travel to Montreal and one day to travel back home, plus one day actually conducting business. So you have really spent three days doing business and seven days having fun. Do three days constitute more than 75 percent of your 10-day trip? No. So in this case, transportation costs that you can deduct are equal to the ratio of business days to total trip days. So, if your business days are three out of a total of 10 trip days, the amount of transportation you can deduct is only 30 percent. That’s two-thirds less expenses you can deduct because you didn’t make it home in less than one week. Therefore, the tax-saving tip you should remember about foreign business trips is:
Come back in less than a week or conduct business 75 percent of the time you are on the foreign trip so you can deduct 100 percent of your transportation costs.
I will detail more rules about transportation expenses in upcoming posts.