How to Claim Tax Deductions on Travel Expenses
Travel expenses are recognized as costs that a person may have to expend for a business or his employer, possibly not receiving compensation after the fact for the cost. In this regard, federal tax law and some state tax laws allow tax filers to claim deductions for the dollars spent as long as the expenses are documented.
For employees who expend money for the benefit of an employer, the costs can be reported on an IRS Form 2106 as well as the general Form 1040, Schedule A. There are immediate cost limitations that restrict allowable expenses to reasonable travel costs. In other words, don’t try to claim a trip to Tahiti as a research cost if it’s not in the normal scope of your work. Further, that personal trip for the family to Disneyland won’t be allowed either.
For work purposes, the first criteria involves some kind of required task that initiates the travel, i.e. a meeting or a task in another location that can be verified. Second, the travel has to be longer than a typical work day. Additionally, the costs are associated with getting rest when you are away from home, i.e. lodging.
Travel cost claimed in the same town where you live or work is going to have a high hurdle for being valid. This is because in most cases the travel is seen by the IRS as likely normal commuting or incidental in the day. This apply to both the city where the job as well as the city where one lives. This can seem particularly confusing for those who travel far in a normal commute. So the rule of thumb to remember to be safe is simply don’t claim anything where you work or live.
Travel costs that are reimbursed by the employer clearly can’t be claimed again as a tax deduction. The fact is the traveler has already been paid and restored to status quo. To then turn around and try to take a deduction for it is trying to double-dip for tax purposes.
Where a person has to work for a short period of time in a different location, those expenses can be claimed if not reimbursed. However, if that assignment lasts more than a year, the IRS will then consider the location a new, permanent work location, nullifying the ability to claim travel costs there.
Travel costs while looking for a job are a bit tricky. If the costs are incurred looking for a job in the same trade or skill, then they count. If you are looking for a first job or trying to find a career in an entirely different industry than before, then related travel costs can’t be deducted. This is the IRS’ way of making sure new job hires don’t use tax deductions as a way to subsidize a career change at the government’s expense. Those unemployed for a long time are out of luck as well, even though it seem unfair on someone having a tough time finding a replacement job, even in the same line of work.
Typical costs that can be claimed involve transportation by plane, taxi, trains, boats and similar. Lodging generally includes motels and hotels but in some situations can include temporary rent for extended stays. Personal car use in the form of mileage counts as well. Meals while on the road are claimable as well.
In every situation, the best defense for taxes is to have a receipt of the expense on file as well copies of the work assignment or business meeting arrangements. This helps answer questions later on if the tax deduction is audited. More detailed information can be found from the IRS online at http://www.irs.gov/taxtopics/tc511.html.