The travel industry in general and airlines specifically took a massive hit during the COVID-19 pandemic. With major cities in lockdown and strict restrictions on hotels and restaurants, “business travel” was accomplished virtually on smartphones or laptops. Now that vaccines have allowed a loosening of restrictions, traditional business travel is once again an option. Among the myriad programs enacted over the past 18 months, one might wonder if the tax code has changed regarding business travel deductions in the post-COVID era.
The short answer is there are only two written-in-stone changes for business travel and a couple of gray areas of travel expense that have not been tested as yet. Other than that, deductions for business travel remain essentially unchanged.
What’s New for Business Travel Deductions in Post-COVID America
There are two changes for business travel deductions effective January 1, 2021. Business travel meals for owners and employees are now 100% deductible, up from 50% in previous years. Taxes are not only a means of raising revenue for governments; they also are designed to encourage certain behaviors. The hospitality industry suffered greatly during the pandemic, and this adjustment in deduction allowance is an effort to support restaurants.
While non-entertainment meals are 100% deductible, the IRS reminds you they cannot be lavish or excessive. To encourage “reasonable” dining deductions, the IRS provides for standard meal allowances that do not require receipts as a backup.
While we are talking “lavish,” let’s briefly discuss the second change. Entertainment expenses such as Broadway shows, yacht trips, etc., are no longer allowed as legitimate deductions, even if part of a business trip. There is something about yachts that gets the IRS’s attention. We would suggest staying away from dinner cruises or any other dining experience on a boat.
There is another area that may come up but has not been ruled on by the IRS yet. Suppose you are prevented from returning home from a business trip because of COVID-19. Suppose your home city declares a lockdown or you have been denied access to an aircraft because you lose your vaccination card or test positive for COVID. Are your additional lodging and meal costs deductible?
Hopefully, this question will not need to be decided. Still, it is an alert for businesses who may want to budget a contingency amount for travel to some regions of the country.
Don’t Forget Established Travel Deductions
Many traditional business travel expenses are still deductible such as cab, rideshare, dry cleaning, business center expenses, and even the cost to ship your clothes or equipment back home. One payment directly related to the pandemic, a COVID-19 test, is not deductible as a business expense but can be deducted as a medical expense.
One last reminder. If you plan to turn a business trip into a “staycation,” the business portion of your trip is deductible, but expenses you incur while you stay for leisure reasons are not. Also, if you take your spouse on a business trip or staycation, his or her expenses are not covered unless he/she is an employee or owner of the business. If you need to hire child care for your kids or board at a kennel for your pet while you are on a business trip, those expenses are not deductible.
If you have questions regarding changes to the tax rules for business travel or any other business expense resulting from the pandemic, don’t hesitate to contact the accounting professionals at San Diego-based ASCEND Business Advisory. Call us today, and let’s discuss your situation.