The IRS allows certain deductions for travel and entertainment on annual income tax returns. Appropriate out-of-town travel expenses for business professionals include, air, train, bus, taxi, car rental, parking and tolls. Hotel stays, meals, tips and related lodging expenses are also allowed.|
Local transportation is another travel and entertainment expense allowed when a business person needs to get from one workplace to another when traveling within the city or general area. The travel must be for visiting clients or customers, going to a business meeting or traveling to a temporary or second workplace. Many people work out of their home as their principal business. They may deduct their daily transportation costs between their home and their client's place of business.
The IRS allows business owners to take either a standard mileage deduction for company owned vehicles used for official business travel and entertainment or they may choose to deduct actual costs to maintain the company vehicle. Actual costs associated to a business vehicle are: depreciation of vehicle, lease payments, insurance, garage rent, repairs, tires, gas, oil, tolls registration, and parking fees.
Also allowed for travel and entertainment tax deductions are expenses for entertaining a client, customer or employee. Entertainment expenses can be deducted if the expenses are both ordinary and necessary. The IRS has specific definitions of what is and what is not a related business entertainment expense.
To qualify for a travel and entertainment expense, the IRS states that it must meet either a directly-related test or associated test. A directly-related test is when there is a combination of business and entertainment that is in the action of conducting business. It must be in a clear business setting and the business person must have a general expectation of getting income or some other business benefit at some future time. The associated test is an expense that is associated with the active conduct of the business such as meeting and entertaining an out-of-town business guest on the evening before or day after the business meeting before they return to their home city.