If your business involves traveling overseas then the ability to deduct business related travel expenses is an important part of filing your taxes every year. Numerous deductions are allowed as long as they fit within accepted guidelines determined by the IRS and the tax savings can be quite significant on an annual basis. However, it is important to be clear and up to date with the latest rules for business travel expense deductions because it is an area that is closely scrutinized by the IRS when reviewing your annual tax return.
50% of food, drinks and entertainment expenses that are business related and within certain limitations
Computer related costs
Rental vehicles, transportation or vehicle use for business purposes
Hotel room charges
Train pass expenses
Taxis and tolls
Miscellaneous business travel expenses
Traveling overseas and deducting the expense is allowed if the trip is primarily made for business purposes. However, rules regarding deducting travel expenses when outside of the U.S. are much stricter compared to domestic travel. Due to the potential for abuse of the rules, the IRS heavily scrutinizes returns which have expenses deducted for foreign travel.
Documenting your trip from beginning to end and including a detailed itinerary of the activities of each day is highly recommended. The trip must be primarily business related and you cannot deduct expenses that were incurred outside of business activities. If it is determined your trip was primarily personal you will not be able to deduct any of the expense and you may face stiff penalties for inaccurately reporting items on your tax return.
Your time must be properly allocated and documented for time spent on business and time spent on personal activities. The exception is if your time is spent one hundred percent on business activities. However, this is an extremely difficult case to prove as in most cases you will spend at least a small percentage of time seeing a friend or seeing a few sights.
Determining if Your Trip is Classified as Primarily Business Related
You must meet one or all of the conditions below in order to fully deduct your trip:
Your trip is shorter than seven days (a full week)
Your trip was longer than one full week but 25% of your time was spent engaged in personal activities
Your trip was in no way intended to be a vacation
If you meet at least one of the conditions above then you may completely deduct your overseas trip as a “business trip” within the allowable limits set by the IRS.
Personal Time of More than 25%
If your personal time was greater than 25% then you may still be able to deduct a portion of your trip for activities that were directly related to doing business. You will have to allocate exact days and times that were spent on both personal and business activities which will determine what expenses and how much of a particular expense you may deduct. Keep in mind; if your trip was a vacation, then none of the cost is deductible.
You may be able to deduct expenses relating to attending a convention outside of the U.S. if the convention is directly relevant to the type of business you operate and there must be a reasonable explanation for the convention to take place outside of U.S. borders.
The exceptions to the stipulations mentioned above are the following countries:
The countries listed are considered a part of the “North American Area” and therefore are not subject to the specific requirements of foreign business travel expense related rules.
While deducting travel related expenses for business is a very common practice, you must be very careful when attempting to deduct the cost of overseas travel. It is important to ensure you follow the specific guidelines of the IRS that are listed above and you must keep excellent documentation in case the IRS decides they want to question your claims.