What are Travel Expenses?
Travel expenses refer to those costs that can be deducted from tax returns when a person is traveling to either seek work, if he or she is employed, or to perform work for a present employer. Expenses considered deductible are dependent upon the country in which a person lives. In the US, for example, there are certain things that are deductible expenses and some may be deducted at a percentage rate instead of at full cost.
A distinction that applies in places like the US is the definition of travel. An employee who always works at a specific location that is a long distance from home usually can’t claim travel expenses because the Internal Revenue Service (IRS) takes into consideration the “work home” of the employee. True travel means working at a distance from the place the employee normally works for less than a year. If work at a distance occurs for longer than a year, that becomes the employee’s work home, and expenses for living there cannot be deducted.
There are many questions about which expenditures qualify as travel expenses and this is determined by the worker’s home country. Some common eligible expenses include money spent for transportation to and from the distant location and for transportation needed in that location. Car rentals, trips on airplanes, buses, trains, or even compensation for mileage if an employee uses his own vehicle might count as legitimate travel expenses. The most common additional deductible expenses are for lodging and food, with the last usually reimbursed at a 50% rate. Other eligible costs could be for laundry services, phone calls, and tips to service employees.
Travel expenses are only deductible if the employee has not been compensated for them in a way that is not reported as income. If an employee used a company credit card to pay for all expenses, she can’t claim these expenses on income tax statements. Similarly, if the employer pays all expenses in another way, so that they are not reported as part of income, they shouldn’t be reported on taxes. Usually, it’s only acceptable to claim travel expenses as tax deductions if the money for all expenses was paid by the employee, self-employed person, or business.
In the US, employees who want to deduct travel expenses must file the 1040 long form and Form 2106. Business owners, the self-employed, or those with limited partnerships will deduct travel expenses differently. They need to file business tax forms to claim these expenses.
Each country has its own rules about how to deduct these expenses and which ones are eligible. It’s important to be familiar with local or country tax laws to determine what expenses are considered allowable. Complex deductions or frequent travel might warrant obtaining the services of an accountant or tax attorney so that all forms are filed accurately. In any case, people planning to claim travel expenses need to make sure to keep all receipts, as these provide proof of each expense.
When traveling and arranging expenses for the purpose of tax refunds it is very important to keep all of your receipts.
I find carrying a small filing binder, about the size of a mass-market paperback book, to be great tool for organizing your receipts. If you have a section for transportation, food, and services you should be ready for tax time if you ever get audited.
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