How to Deduct Travel Expenses on Schedule C, Line 24a

.tags

Travel expenses are another of those “obvious” expenses that most Sole Proprietors incur. It is also one of the most abused small business expenses, so it’s important that you understand the basic rules so as not to run afoul of the IRS in the event of an audit. And Line 24a (along with 24b, Meals) is one of the most frequently audited lines on Schedule C. So the purpose of this article is to explain the rules on travel expenses so that you know what you can and cannot deduct. If you follow these rules carefully and are ever audited, you’ll have nothing to worry about.

The first “ground rule” is the obvious one: the travel expenses must be related to an overnight trip of a business purpose. You can only deduct travel expenses for yourself and your employees. If your spouse or children happen to travel with you, their travel expenses are not deductible, unless your spouse or child is an employee of your business and there is a bona fide business purpose for their presence on the trip.

The two most common types of deductible travel expenses are transportation and lodging. Let’s take a close look at both of them.

Transportation is the cost of getting to and from your destination. It can include the cost of traveling by plane, train or bus, or any other form or public transportation. If you drive your own car, you would deduct the transportation expense based on whether you are using the Mileage Method or the Actual Expense Method for your vehicle deduction.

Lodging is the cost of staying in a hotel or motel. What happens if your spouse travels with you and your spouse is not your employee? How do you determine the deduction for the hotel room? If the cost of the room is the same regardless of the number of people staying in the room, then you get to deduct the actual cost of the room. But if the cost of two people is more than the cost of one person, your deduction is the one-person room rate, not the two-person room rate.

What about the cost of meals? You do get to deduct meals while on an overnight business trip, but not on Line 24a. Meals expenses, for either overnight business trips or for local business meals, are deductible on Line 24b.

With regard to both lodging and meals, you can deduct the actual cost of the expense (for meals, that means actual cost times 50%) or you can take a deduction based on the Per Diem Method, regardless of the actual expense amount. A per diem is a standard IRS-approved amount determined by the location of the trip. For details on per diem rates and how they work, see IRS Publication 1542.