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Business Travel Expenses & IRS Deductions

You Can Deduct Meals As An Expense

You can deduct the cost of meals in either of the following situations.

  • It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business.
  • The meal is business-related entertainment.

Business-related entertainment is discussed in chapter 2. The following discussion deals only with meals that are not business-related entertainment.

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.

50% limit on meals.   You can figure your meals expense using either of the following methods.

  • Actual cost.
  • The standard meal allowance.
Both of these methods are explained below. But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your 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.

Actual Cost

You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. If you use this method, you must keep records of your actual cost.

Standard Meal Allowance

Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. The set amount varies depending on where and when you travel. In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance. 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.

Incidental expenses.   The term “incidental expenses” means:
  • Fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships, and hotel servants in foreign countries,
  • Transportation between places of lodging or business and places where meals are taken, if suitable meals can be obtained at the temporary duty site, and
  • Mailing costs associated with filing travel vouchers and payment of employer-sponsored charge card billings.
Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, or the costs of telegrams or telephone calls.

Incidental expenses only method.  You can use an optional method (instead of actual cost) for deducting incidental expenses only. The amount of the deduction is $3 a day for incidental expenses paid or incurred for travel away from home in 2005. You can use this method only if you did not pay or incur any meal expenses. You cannot use this method on any day that you use the standard meal allowance. This method is subject to the proration rules for partial days. See Travel for days you depart and return, later in this chapter.

Caution

Federal employees should refer to the Federal Travel Regulations at www.gsa.gov. Click on “Per Diem Rates,” then on “Federal Travel Regulation (FTR) Overview” for changes affecting claims for reimbursement of these expenses.
 
50% limit may apply.   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, 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.

Caution

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.

Use of the standard meal allowance for other travel.   You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. You can also use it to figure your meal expenses when you travel for qualifying educational purposes. You cannot use the standard meal allowance to figure the cost 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 2005, the rate for most small localities in the United States is $31 a day from January 1, 2005, through September 30, 2005, and $39 a day from October 1, 2005, through December 31, 2005.

Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. These rates are listed in Publication 1542, which is available on the Internet at www.irs.gov.

Access by computer
 You can also find this information on the Internet at www.gsa.gov. Click on “Per Diem Rates,” then select “2005” for the period January 1, 2005 – September 30, 2005, and select “2006” for the period October 1, 2005 – December 31, 2005. However, you can apply the rates in effect before October 1, 2005, for expenses of all travel within the United States for 2005 instead of the updated rates. You must consistently use either the rates for the first 9 months of 2005 or the updated rates for the period of October 1, 2005, through December 31, 2005.

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.

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.

Access by computer
 You can access foreign per diem rates at www.state.gov/m/a/als/prdm.
 
Address you may need
 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
 
Phone number
 You can also order it by calling the Government Printing Office at 1-202-512-1800 (not a toll-free number).

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:

  • Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and
  • 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 standard meal allowance of $41 a day ($46 for travel outside the continental United States) for 2005.

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 (figure a reduced amount for each day). You can do so by one of two methods.

  • Method 1: You can claim ¾ of the standard meal allowance.
  • Method 2: You can prorate using 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 have to use Method 1 and be limited to only 2½ days.

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