Before you head out for an international business trip, talk to your accountant about how to take advantage of as many deductible expenses as possible. Many of the IRS regulations for deducting international travel expenses depend on the percentage of the trip that is business or personal. If you know the rules before you go, you can make sure that your plans comply. Then you can head off on your trip with confidence that you will be deducting the maximum amounts allowable for airline and rail tickets, baggage services, in-flight wi-fi, rental cars or taxis, international cell phone coverage, lodging, laundry services and meals. When you reach out to your accountant, be ready to answer these 3 questions.
1) How long is the trip? If the trip is less than one work day, some expenses may not be deductible.
2) Is the trip going to be repeated regularly? If the trip is your new commute, some expenses may not be deductible.
3) What is the business % of the trip (# of business days / total # of trip days)? In general, there are 4 types of business days. a) Days that you are in transit. For example, the day that you fly. b) Days that you need to be present in a foreign country for a business reason. For example, the day that you have coffee with a potential client. c) Days that you perform normal work duties for more than 4 hours. For example, you respond to emails from 8-12:15 even though you can smell salt air and feel a sea breeze. d) Weekends and holidays that fall in between business days. For example, Saturday and Sunday are business days while Friday and Monday are business days.
- If the trip is 0% – 75% business days…
- Deductible expenses relate to specific business days only. For example, 0% of your airline ticket is deductible but a train ticket to the client’s town for a day and a taxi to the client’s office may be 100% deductible.
- Some meals on business days are 50% deductible.
- If the trip is 76% -100% business days…
- The business % of the trip is the % deductible for many of your expenses.
- Most meals on business days are 50% deductible.
- In order to deduct 100%, you must be able to prove one of the following:
- Your employer controlled the trip (and you are not related to your employer).
- You are outside the United States for less than one week.
- You can prove that a personal vacation was not a factor in planning the trip.
- You spend > 75% of your time in a foreign country on work-related activities.
Note: Entertainment expenses, such as museum and event tickets, are not deductible.
Note: General rules about business expenses still apply. You need to retain supporting documentation and the expenses must be “ordinary” (common) and “necessary” (helpful) for your business.
Note: If you own > 10% of the business, you cannot use per diem rates for lodging. You could use per diem rates for meals but there is not much advantage to it because you still have to document where you are, who is with you, and the business purpose of the meal. So, you may as well retain the actual receipt too. If you aren’t familiar with per diem rates, they are a way to reduce the burden of retaining receipts. Instead of deducting actual expenses that you incur, you deduct the rate that is set by the U.S. Department of State. They calculate specific rates that change for where and when you are going. For example, in May of 2023, the per diem meal rate for travel in Paris, France is $153, and for Quebec, Canada is $126.
Disclaimer – We have not included all possible restrictions and complexities. It is crucial that you consider more information than we have written here. Always discuss your specific scenario with a professional accountant.
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