If you drive your personal car or rental car outside of your tax home for business, deducting travel mileage can be available to you. Let’s walk through the process for business travel expense deductions including car rentals, mileage and entertainment expenses.
Deducting Your Mileage When You Travel Out Of Town
You can deduct out-of-town miles the same way you would for your local drives. That is, you use either the standard mileage rate or the actual expense method. You may also deduct your mileage while at your destination.
However, your mileage deductions don’t end there. You may also deduct the expenses you incur to stay alive (food and lodging) and do business while at your destination. Destination expenses include:
- hotel or other lodging expenses for business days
- 50% of meal and beverage expenses
- laundry and dry cleaning expenses, and
- tips you pay on any of the other costs.
However, you are allowed to deduct your meal, lodging and other destination expenses only when you travel away from your tax home overnight for your business. You don’t have to travel any set distance to get a travel expense deduction. But you can’t take this deduction if you just spend the night in a motel across town. You must travel outside your city limits. If you don’t live in a city, you must go outside the general area where your business is located.
What Qualifies For Business Travel Expenses?
You must stay away overnight or at least long enough to require a stop for sleep or rest. You cannot satisfy the rest requirement by merely napping in your car.
Example: Phyllis, a self-employed salesperson based in Los Angeles, drives to San Diego to meet potential clients, spends the night in a hotel, and returns home the following day. Her trip is a deductible travel expense.
Example: Andre, a self-employed truck driver, leaves his work-place on a regularly scheduled round-trip between San Francisco and Los Angeles and returns home 18 hours later. During the run, he has six hours off at a turnaround point where he eats two meals and rents a hotel room to get some sleep before starting the return trip. Andre can deduct his meal and hotel expenses as travel expenses.
If you don’t stay overnight, you may only deduct your transportation expenses—the cost of driving or using some other means of transportation. You may not deduct meals or other expenses as when you travel for business and stay overnight.
Example: Philip drives from his office in Los Angeles to a business meeting in San Diego and returns the same day. His 200-mile round-trip is a deductible local business trip. He may deduct his expenses for the 200 business miles he drove, but he can’t deduct the breakfast he bought on the way to San Diego.
Where Is Your Tax Home?
Your tax home is the entire city or general area where your principal place of business is located. This is not necessarily the place where you live. The IRS doesn’t care how far you travel for business. You’ll get a deduction as long as you travel outside your tax home’s city limits and stay overnight. Thus, even if you’re just traveling across town, you’ll qualify for a deduction if you manage to stay outside your city limits.
Example: Pete has his office in San Francisco. He drives to Oakland for an all-day meeting with a client. At the end of the meeting, he decides to spend the night in an Oakland hotel rather than brave the traffic back to San Francisco. Pete’s stay qualifies as a business trip even though the distance between his San Francisco office and the Oakland business meeting is only eight miles. Pete can deduct his hotel and meal expenses.
If you don’t live in a city, your tax home covers the general area where your business is located. This general area is anywhere within about 40 miles of your principal place of business.
If you work in more than one location, your tax home is your main place of business. To determine this, consider: the total time you spend in each place the level of your business activity in each place, and the amount of income you earn from each place.
Rental Car Tax Deduction
You don’t have to own the car you drive on business to get a deduction for your driving expenses. You may deduct your car expenses if you drive a rental car on business. This includes the daily rental fee as well as gas, parking, and tolls.
Example: Nat flies from San Francisco to San Diego, rents a car, and drives to meet a client. He then drives to his hotel where he spends the night. The next day he drives to visit another client, drives back to the airport, and then flies home. All this driving was business-related and is therefore fully deductible. He may deduct all his car rental fees as well as the cost of gas and parking (but he can’t take a mileage deduction for the miles he drives). Since he was outside of his tax home overnight, he may also deduct his hotel costs and 50% of his meal expenses. His airfare to and from San Diego is 100% deductible as well.