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Understanding business travel deductions
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IRS Tax Tip 2023-15, February 7, 2023
Whether someone travels for work once a year or once a month, figuring out travel expense tax write-offs might seem confusing. The IRS has information to help all business travelers properly claim these valuable deductions.
Here are some tax details all business travelers should know
Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day's work and they need to sleep to meet the demands of their work while away.
Travel expenses must be ordinary and necessary. They can't be lavish, extravagant or for personal purposes.
Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.
Travel expenses for conventions are deductible if attendance benefits the business. There are special rules for conventions held outside North America .
Deductible travel expenses include:
- Travel by airplane, train, bus or car between your home and your business destination.
- Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
- Shipping of baggage and sample or display material between regular and temporary work locations.
- Using a personally owned car for business.
- Lodging and meals .
- Dry cleaning and laundry.
- Business calls and communication.
- Tips paid for services related to any of these expenses.
- Other similar ordinary and necessary expenses related to the business travel.
Self-employed individuals or farmers with travel deductions
- Those who are self-employed can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) .
- Farmers can use Schedule F (Form 1040), Profit or Loss From Farming .
Travel deductions for the National Guard or military reserves
National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty .
Recordkeeping
Well-organized records make it easier to prepare a tax return. Keep records such as receipts, canceled checks and other documents that support a deduction.
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IRS Updates 2023-2024 Per Diem Rates for Business Travelers
Taxpayers can use the special per diem rates to substantiate the amount of expenses for lodging, meals, and incidental expenses.
Jason Bramwell
Sep. 26, 2023
The IRS has released the special per diem rates for 2023-24 that take effect on Oct. 1, which taxpayers can use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home.
Notice 2023-68 , which the IRS published on Monday, provides the special transportation industry rate, the rate for the incidental expenses-only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method for the period of Oct. 1, 2023, to Sept. 30, 2024.
The use of a per diem substantiation method is not mandatory. Taxpayers can substantiate the actual allowable expenses if they maintain adequate records or other sufficient evidence for proper substantiation, according to the IRS.
The special meal and incidental expenses rates for taxpayers in the transportation industry are $69 for any location in the continental United States and $74 for any locality outside the continental U.S. The rate for any travel locale inside or outside the continental U.S. for the incidental expenses-only deduction is $5 per day.
For purposes of the high-low substantiation method, the per diem rates are $309 for travel to any high-cost locality and $214 for travel to any other locality within the continental U.S. The amount of the $309 high rate and $214 low rate that is treated as paid for meals is $74 for travel to any high-cost locale and $64 for travel to any other locality within the continental U.S.
Under the meal and incidental expenses-only substantiation method, per diem rates are $74 for travel to any high-cost locality and $64 for travel to any other locality within the continental U.S.
Notice 2023-68 also provides a list of high-cost localities that have a federal per diem rate of $261 or more.
Revenue Procedure 2019-48 provides the rules for using per diem rates, rather than actual expenses, to substantiate the amount of expenses for lodging, meals, and incidental expenses for travel away from home. Taxpayers who use per diem rates to substantiate the amount of travel expenses under Rev. Proc. 2019-48 may use the federal per diem rates published annually by the General Services Administration. Rev. Proc. 2019-48 allows certain taxpayers to use a special transportation industry rate or to use rates under a high-low substantiation method for certain high-cost localities. The IRS announces these rates and the rate for the incidental expenses-only deduction in an annual notice.
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The IRS Announces New Per Diem Rates Effective October 1, 2023
The IRS recently released Notice 2023-68 to give the updated per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses they incur while traveling away from home. Taxpayers may use the methods in the Notice without having to maintain the supporting documentation normally required by the tax law.
The notice is effective for any per diem allowance paid for lodging, meal, and incidental expenses after October 1, 2023, the beginning of the U.S. Government’s fiscal year. Rev. Proc. 2019-48 provides further rules and explanation to the per diem methods, and the specific rates are indexed annually by a notice.
Notice 2023-44 covers:
- Meal & incidental expense rates for the transportation industry
- Rate for the incidental expenses only deduction
- Annual high-low rates for the high-low substantiation method
Transportation Industry
Special rules apply for those who work in the transportation industry. Someone who works in the transportation industry is defined in Rev. Proc. 2019-48 as someone whose work directly involves moving people or goods by airplane, barge, bus, ship, train, or truck. The person must also regularly travel away from home to localities with differing rates. The rate for meal and incidental expenses for travel in the continental US remains at $69 per day. For outside the continental US, it’s $74 per day.
Incidental Expenses
The incidental expenses only deduction remains at $5 per day for any travel inside or outside of the continental US. Incidental expenses are defined by Rev. Proc. 2019-48 as fees and tips to porters, baggage carriers, bellhops, hotel staff, and staff on ships.
“High-low”
Under the high-low substantiation method, the federal per diem rate to be used is the “high” rate for high-cost localities and the “low” rate for all other localities. The annual high-low rate for the high-low substantiation method is $309 for travel to any high-cost locality and $214 for travel to any other locality within the continental US. This rate includes lodging, meals, and incidental expenses.
For meal and incidental expenses only, the rate is $74 for travel to any high-cost locality, and $64 for travel to any other locality within the continental US. See pages 3-7 of Notice 2023-68 for a complete list of high-cost localities. There is no rate for lodging alone. Some places are only considered “high-cost localities” for certain portions of the year. Since the last IRS notice, a handful of localities have been added to the list of high-cost localities. Please see the notice for the complete listing.
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Tax Tip 2023-15, February 7, 2023 — Whether someone travels for work once a year or once a month, figuring out travel expense tax write-offs might seem confusing. The IRS has information to help all business travelers properly claim these valuable deductions.
Sep. 26, 2023. The IRS has released the special per diem rates for 2023-24 that take effect on Oct. 1, which taxpayers can use to substantiate the amount of expenses for lodging, meals, and...
FY 2023 General Rates: Print Average Per-Diems Table. The per diem rates shown here are averages of all of the per diem rates within each state as of January 2023. For a full schedule of per diem rates by destination, click on any of the states below. Learn More: Free Tools: General Schedule Pay Calculator. Federal Wage System Pay Calculator.
The notice is effective for any per diem allowance paid for lodging, meal, and incidental expenses after October 1, 2023, the beginning of the U.S. Government’s fiscal year. Rev. Proc. 2019-48 provides further rules and explanation to the per diem methods, and the specific rates are indexed annually by a notice. Notice 2023-44 covers:
The 2023 standard per diem for most of the US is $157, which breaks down to $98 for lodging and $59 for meals and incidentals. It’s important to know that these rates fluctuate depending on the destination of travel, and they only cover the 48 states of the continental United States and the District of Columbia.