Tax Rules for Foreign Business Travel

You’re heading out of the country on a business trip. What tax rules apply to your foreign business travel?

Tax Rules for a Trip That’s Entirely Business

If your foreign travel is entirely for business purposes, you can deduct:

• All travel costs
• Meals (at 50%)
• Lodging
• Some incidental costs (like laundry and dry cleaning)
  

One Week Tax Rule for Foreign Business Travel

When your business trip requires a passport, your travel expenses are tax deductible if the travel lasts a week or less.

This includes 100% of your transportation costs and all of your daily out-of-pocket living expenses for business days (50% limitation on meals).

A week for this purpose means seven consecutive days, not counting the day of departure, but counting the day of return.

25% Rule

If your business trip is longer than a week, you can deduct your travel expenses if the personal days make up less than 25% of the total days spent on the trip.

For this purpose, the total days of the trip include the day of departure and the day of return.

What tax rules count as business days:

• If business is conducted for a part of the day, it’s counted as a business day
• Days spent traveling to or from a business destination
• Weekend days or holidays falling between two business days.
  

Example: Tax Rules for Foreign Business Travel

Andrew flies to Paris on a Monday primarily for business reasons. Andrew spends Tuesday and Wednesday vacationing and then spends Thursday, Friday, and the following Monday through Thursday on business before flying home Friday.

Counting the days of return and departure, it’s a 12 day trip. Only the first Tuesday and Wednesday are nonbusiness days. Thus, less than 25% of the trip is personal (2 personal days of 12 total trip days).

All of the travel costs (airfare, etc.) are deductible, as well as the meals (at 50%) and lodging for the business days. Andrew will be unable to deduct the meals and lodging costs for the two vacation days.

The travel costs need not be allocated between personal and business because of the 25% rule.

If you don’t meet the one week or 25% test, you may still be able to deduct all of the travel costs if you can show that the chance to take a vacation was not a major consideration for the trip. Of course, the larger the vacation portion, the more difficult it will be to make your case.

Partial Business and Personal Travel Over a Week

The rules are more complex if the trip is primarily but not entirely for business.

If your trip doesn’t meet the one week rule or the 25% rule, the costs allocable to the personal (vacation) part of the trip cannot be deducted.

For example, if the trip covers ten days—four personal and six business—meals, then lodging, etc. are only deductible for the business days. Furthermore, only 60% of the travel costs (airfare, etc.) are deductible, reflecting the fact that only 60% of the days of the trip were business days.

Primarily Personal Business Trip

If the trip is primarily personal, none of the costs of travel to and from the destination are deductible, even if some time is spent on business. Lodging, meals, etc. would be deductible for the business days.