Generally, taxpayers are entitled to deduct ordinary and necessary expenses paid or incurred while traveling away from home in their business, profession, or for-profit activity. If any part of the business travel is outside the United States, however, some of the deductions for the cost of getting to or from the destination may be limited. The determination of how much of the travel expenses are deductible depends partially on how much of the trip outside the United States was business related.
If you travel outside the United States and spend your entire time on business activities, you may deduct all of the travel expenses you incurred getting to and from your business destination, as well as lodging and 50 percent of meal costs. However, if the purpose of the trip is primarily personal, none of these costs are deductible, even if some business is conducted.
Where the purpose of the trip is primarily for business but some nonbusiness (vacation type) activities are engaged in, the deductible business expenses must be allocated in proportion to the business versus nonbusiness days. Only the costs allocable to the business portion of the trip may be deducted, unless you come within one of the "safe harbors" which allows you to treat the trip as if your time were spent entirely on business. To qualify, either the total travel time must not be more than a week, or the nonbusiness activity must be less than 25 percent. There are some special rules for determining which days count for these purposes.
Naturally, some of the rules are a bit complicated. However, they must be followed if you wish to qualify for the largest possible deductions for your expenses. If you wish to discuss them more fully, please do not hesitate to contact us.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, information contained in this article is not intended by TOPC Potentia P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.