1. Travel Expenses

If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. This chapter defines tax home,temporary assignment, and travel expenses, including the standard meal allowance. It also discusses the rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses.

Travel expenses defined.   For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. However, you cannot deduct expenses that are lavish or extravagant. See, later, What Travel Expenses Are Deductible?

You will find examples of deductible travel expenses in Table 1, later.

Traveling away from home.    You are traveling away from home if:

1. Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and
2. You need to get sleep or rest to meet the demands of your work while away from home.

This rest requirement is not satisfied by merely napping in your car. You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest.

Example 1.   You are a railroad conductor. You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. You are considered to be away from home, and you can deduct travel expenses.

Example 2.   You are a truck driver. You leave your terminal and return to it later the same day. You get an hour off at your turnaround point to eat. Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, your trip is not considered as travel away from home. You cannot deduct travel expenses.

Tax Home

To deduct travel expenses, you must first determine the location of your tax home.

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located. If you have more than one regular place of business, your tax home is your main place of business. See Main place of business or work, later. If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. See No main place of business or work, later.

If you do not have a regular place of business or post of duty and there is no place where you regularly live, you are considered a transient (an itinerant) and your tax home is wherever you work. As a transient, you cannot claim a travel expense deduction because you are never considered away from home.

Main place of business or work.    If you have more than one place of work, consider the following when determining your main place of business or work.

1. The total time you ordinarily spend working in each area.
2. The degree of your business activity in each area.
3. The relative amount of your income from each area.

Example.   You live in Cincinnati where you have a seasonal job for 8 months each year and earn $25,000. You work the other 4 months in Miami, also at a seasonal job, and earn $9,000. Cincinnati is your main place of work because you spend most of your time there and earn most of your income there.

No main place of business or work.   You may have a tax home even if you do not have a regular or main place of work. Your tax home may be the home where you regularly live.

Factors used to determine tax home.   If you do not have a regular or main place of business or work, use the following three factors to see if you have a tax home.

1. You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.
2. You have living expenses at your main home that you duplicate because your business requires you to be away from that home.
3. You have not abandoned the area in which both your traditional place of lodging and your main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.

If you satisfy all three factors, your tax home is the home where you regularly live, and you may be able to deduct travel expenses. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are a transient; your tax home is wherever you work and you cannot deduct travel expenses.

Example 1.   You are single and live in Boston in an apartment you rent. You have worked for your employer in Boston for a number of years. Your employer enrolls you in a 12-month executive training program. You do not expect to return to work in Boston after you complete your training.

During your training, you do not do any work in Boston. Instead, you receive classroom and on-the-job training throughout the United States. You keep your apartment in Boston and return to it frequently. You use your apartment to conduct your personal business. You also keep up your community contacts in Boston. When you complete your training, you are transferred to Los Angeles.

You do not satisfy factor (1) because you did not work in Boston. You satisfy factor (2) because you had duplicate living expenses. You also satisfy factor (3) because you did not abandon your apartment in Boston as your traditional home, you kept your community contacts, and you frequently returned to live in your apartment. You have a tax home in Boston for travel expense deduction purposes.

Example 2.   You are an outside salesperson with a sales territory covering several states. Your employer's main office is in Newark, but you do not conduct any business there. Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. You have a room in your married sister's house in Dayton. You stay there for one or two weekends a year, but you do no work in the area. You do not pay your sister for the use of the room.

You do not satisfy any of the three factors listed earlier. You are a transient and have no tax home. Because you are never away from home, you cannot deduct the cost of your meals and lodging as travel expenses.

Living away from your tax home.   If you (and your family) live in an area outside your tax home (main place of work), you cannot deduct the cost of traveling between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home. See Example 1 that follows.

If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. See Example 2, below.

Example 1.   You are a truck driver and you and your family live in Tucson. You are employed by a trucking firm that has its terminal in Phoenix. At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. This is because Phoenix is your tax home.

Example 2.   Your family home is in Pittsburgh, where you work 12 weeks a year. The rest of the year you work for the same employer in Baltimore. In Baltimore, you eat in restaurants and sleep in a rooming house. Your salary is the same whether you are in Pittsburgh or Baltimore.

Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. You cannot deduct any expenses you have for meals and lodging there. However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. You can deduct the cost of your round trip between Baltimore and Pittsburgh. You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh.

Temporary Assignment or Job

You may regularly work within the city or general area of your tax home and also work at another location. It may not be practical to return home from this other location at the end of each work day.

If your assignment or job away from your main place of work is temporary, your tax home does not change. You are considered to be away from home for the whole period you are away from your main place of work. Your travel expenses are deductible. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less.

However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year, whether or not it actually lasts for more than one year.

If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. You may be able to deduct the cost of relocating to your new tax home as a moving expense. See Publication 521, Moving Expenses, for more information.

Exception for federal crime investigations or prosecutions.   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the one-year rule for deducting temporary travel expenses. This means you may be able to deduct travel expenses even if you are away from your tax home for more than one year.

For you to qualify, the Attorney General must certify that you are traveling:

1. For the federal government,
2. In a temporary duty status, and
3. To investigate or prosecute, or provide support services for the investigation or prosecution of, a federal crime.

You can deduct your otherwise allowable travel expenses throughout the period of certification.

Determining temporary or indefinite.   You must determine whether your assignment is temporary or indefinite when you start work. If you expect employment to last for one year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Employment that is initially temporary may become indefinite due to changed circumstances. A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment.

The following examples illustrate when you can and cannot deduct travel expenses for a temporary assignment.

Example 1.   You are a construction worker. You live and regularly work in Los Angeles. You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Because of a shortage of work, you took a job on a construction project in Fresno. Your job was scheduled to end in eight months, and you planned to return to Los Angeles at that time. The job actually lasted 10 months, after which time you returned to Los Angeles. Your family continued to live in your home in Los Angeles.

While in Fresno, you lived in a trailer you own. You returned to Los Angeles most weekends and maintained contact with the local union to see if you could get work in Los Angeles. You realistically expected the job in Fresno to last eight months. The job actually did last less than one year. Because you expected to return home when it ended, your tax home is in Los Angeles for travel expense deduction purposes.

Example 2.   The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. The job actually was completed in 10 months.

Your job in Fresno is indefinite because you realistically expected the work to last longer than one year, even though it actually lasted less than one year. You cannot deduct any travel expenses you had in Fresno.

Example 3.   The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months).

Initially, you realistically expected the job in Fresno to last for only 9 months. However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for one year or less. You can only deduct your travel expenses for the first 8 months. You cannot deduct any travel expenses you had after that time.

Going home on days off.   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. You cannot deduct the cost of your meals and lodging there. However, you can deduct your travel expenses, including meals and lodging, while traveling from the area of your temporary place of work to your hometown and back to work. You can claim these expenses up to the amount it would have cost you for meals and lodging had you stayed at your temporary place of work.

If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work.

Probationary work period.    If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. You cannot deduct any of your expenses for meals and lodging during the probationary period.

Members of the Armed Forces.    If you are a member of the U.S. Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. You cannot deduct your expenses for meals and lodging. You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521.

A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes.

What Travel Expenses Are Deductible?

Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible.

Deductible travel expenses include those ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances.

Table 1 summarizes travel expenses you may be able to deduct. You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances.

When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. You can use a log, diary, notebook, or any other written record to keep track of your expenses. The types of expenses you need to record, along with supporting documentation, are described in Table 4 (see chapter 5).

Travel expenses for another individual.    If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses.

Employee.   You can deduct the travel expenses you have for an accompanying individual if that individual:

1. Is your employee,
2. Has a bona fide business purpose for the travel, and
3. Would otherwise be allowed to deduct the travel expenses.

Business associate.   If a business associate travels with you and meets the conditions in (2) and (3) above, you can claim the deductible travel expenses you have for that person. A business associate is someone with whom you could reasonably expect to actively conduct business. A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor.

Bona fide business purpose.   For a bona fide business purpose to exist, you must prove a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers, are not enough to warrant a deduction.

Example.   Jerry drives to Chicago on business and takes his wife, Linda, with him. Linda is not Jerry's employee. Even if her presence serves a bona fide business purpose, her expenses are not deductible.

Jerry pays $115 a day for a double room. A single room costs $90 a day. He can deduct the total cost of driving his car to and from Chicago, but only $90 a day for his hotel room. If he uses public transportation, he can deduct only his fare.

Table 1. Travel Expenses You Can Deduct

Meals

Unless you meet the rules for business entertainment, you cannot deduct the cost of meals if it is not necessary for you to stop for sleep or rest to properly perform your duties. These rules are explained in chapter 2.

50% limit on meals.   You can use either the actual cost of your meals or a standard amount to figure your meals expense. (See Standard Meal Allowance later in this chapter.) However, you can generally deduct only 50% of the cost of your unreimbursed business-related meals.

If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Chapter 2 discusses the 50% limit in more detail, and chapter 6 discusses accountable and nonaccountable plans.

Lavish or extravagant.    You cannot deduct expenses for meals that are lavish or extravagant. An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts.

Standard Meal Allowance

You generally can deduct a standard amount for your daily meals and incidental expenses (M&IE) while you are traveling away from home on business. In this publication, standard meal allowance refers to the federal rate for M&IE (which varies based on where and when you travel).

Incidental expenses.    These include, but are not limited to, your costs for the following items.

1. Laundry, cleaning and pressing of clothing.
2. Fees and tips for persons who provide services, such as porters and baggage carriers.

Incidental expenses do not include taxicab fares, lodging taxes, or the costs of telegrams or telephone calls.

Federal employees should refer to the Federal Travel Regulations at 41 CFR 301 for changes affecting their claims for reimbursement of these expenses.

The standard meal allowance method is an alternative to the actual cost method. It allows you to deduct a set amount, depending on where and when you travel, instead of keeping records of your actual costs. If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. See the recordkeeping rules for travel in chapter 5.

There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost.

Who can use the standard meal allowance.   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. You cannot use the standard meal allowance if you are related to your employer as defined next.

Related to employer.    You are related to your employer if:

1. Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant,
2. Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or
3. Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer.

You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock.

Use of the standard meal allowance for other travel.   You can use the standard meal allowance to prove meal expenses you have when you travel in connection with investment and other income-producing property. You can also use it to prove meal expenses you have when you travel for qualifying educational purposes. You cannot use the standard meal allowance to prove the amount of your meals when you travel for medical or charitable purposes.

Amount of standard meal allowance.   The standard meal allowance is the federal M&IE rate. For travel in 2000, the rate is $30 a day for most areas in the United States. Other locations in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Locations qualifying for rates of $34, $38, $42, or $46 a day are listed in Publication 1542.

If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. If you work in the transportation industry, however, see Special rate for transportation workers, later.

50% limit may apply.   If you are not reimbursed or if you are reimbursed under a nonaccountable plan for meal expenses, you can generally deduct only 50% of the standard meal allowance. If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. The 50% limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6.

Standard meal allowance for areas outside the continental United States.   The standard meal allowance rates do not apply to travel in Alaska, Hawaii, or any other locations outside the continental United States. The federal per diem rates for these locations are published monthly in the Maximum Travel Per Diem Allowances for Foreign Areas.

Your employer may have these rates available, or you can purchase the publication from the:

Superintendent of Documents
U.S. Government Printing Office
P.O. Box 371954
Pittsburgh, PA 15250-7954.

You can also order it by calling the Government Printing Office at 1-202-512-1800 (not a toll-free number).

Per diem rates are also available on the Internet. If you have a computer and a modem, you can access domestic per diem rates at:

www.policyworks.gov/perdiem

You can access foreign per diem rates at:

www.state.gov/www/perdiems

Special rate for transportation workers.    You can use a special standard meal allowance if you work in the transportation industry. You are in the transportation industry if your work:

1. Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and
2. Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates.

If this applies to you, you can claim a $38 a day standard meal allowance ($42 for travel outside the continental United States).

Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year.

Travel for days you depart and return.   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance. You can do so by one of two methods.

• Method 1: You can claim ¾ of the standard meal allowance.
• Method 2: You can use any method that you consistently apply and that is in accordance with reasonable business practice.

Example.   Jen is employed in New Orleans as a convention planner. In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. She left her home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p.m. Jen's employer gave her a flat amount to cover her expenses and included it with her wages.

Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: ¾ of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday.

Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. For example, she could claim 3 days of the standard meal allowance even though a federal employee would be limited to only 2½ days.

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