Picture it: you have an upcoming business trip to an exciting location, and your spouse gets that sparkle in their eye: “Can I come too?”
Beyond the fun of combining business with a bit of leisure, an essential question arises: “Are my spouse’s travel expenses tax deductible?” While we all love the idea of trimming down our tax bill, there are specific rules to understand. Let’s demystify this topic before you start planning your next business trip.
Understanding business travel expenses
Before delving into travel expenses, let’s get a refresher on the basics of business expense deductions. According to IRS rules, for an expense to be deductible, it must be both ordinary and necessary. An “ordinary” expense is one that’s common in your industry, while a “necessary” expense is helpful and appropriate for your business. The expense doesn’t have to be indispensable to be considered necessary.
Deductible travel expenses generally include:
- Travel by air, train, or bus between your home and your business destination
- Fares for taxis or rideshare services between the airport or train station and your hotel and between your hotel and your client’s location, business meeting place, or temporary work location
- Shipping samples or display materials
- Using your personal vehicle or a rental car to get to your business destination and while you’re there.
- Lodging and meals
- Dry cleaning and laundry while on a business trip
- Tips you pay for services related to business travel expenses
As a general rule, the IRS doesn’t allow deductions for personal, living, or family expenses. So, when you bring your spouse, significant other, or a friend on a business trip, their expenses are usually considered personal. This means that costs such as airfare, meals, and lodging for your companion are not deductible.
When can you deduct spousal travel?
There are, however, exceptions to every rule. You can deduct your spouse’s travel expenses if they meet all three of the following criteria.
- Your spouse is your employee. The primary condition here is that your spouse must be a bona fide employee of your business. This means they have an actual job with documented responsibilities, and their employment is an “ordinary and necessary” part of running your business.
- The trip has a bona fide business purpose. This means your spouse’s presence is essential to your business’s success on that particular trip. Maybe they’re required to attend meetings, assist with presentations or fulfill other significant roles. Simply having them answer a few emails or take notes during a meeting doesn’t count.
- The expenses are otherwise deductible. All the other regular IRS rules for deductible travel expenses must still apply. This means the costs must be reasonable and not lavish or extravagant.
For example, if your spouse manages client relations and there’s a critical dinner with a client during the trip, their presence might be deemed necessary. In that case, their travel expenses are deductible. However, their costs remain personal if they’re simply joining to explore the locale.
Of course, with tax rules, there’s rarely a “one-size-fits-all” answer to whether an expense is deductible. This is the case when determining whether your spouse’s travel expenses are deductible, especially when their role in the business is ambiguous. Here are a few gray areas that can cause confusion.
Business mixed with pleasure
Suppose you and your spouse take a trip that’s primarily for business purposes, but you both take an extra couple of days for sightseeing. In that case, you must separate and only deduct the business-related expenses.
For example, say you own a medical practice based in Chicago, and your spouse is the practice’s office manager. You both attend a medical conference in New York City. The conference lasts three days, but you take an extra two days after the conference to sightsee in New York and attend a Broadway show. The cost of airfare to and from New York is fully deductible. However, you must split your other expenses—your hotel room, meals, cab fare, etc.—between business and personal. So, in our example, if your trip is 5 days and you take two days for sight seeing, then 2/5ths of your hotel, meals, etc are not deductible.
Remember, to be deductible, the trip’s primary purpose must be business. If the trip’s main purpose is personal, you can’t deduct any costs not directly related to your business, even if you do some work while you’re there.
For example, say you and your family travel to Florida to visit Disney World. You have a client in town, so while in Orlando, you take them out to dinner one night and discuss business matters. While you can deduct 50% of the cost of that meal as a business expense, the rest of your trip is still a personal trip and not deductible.
Shared expenses
You can fully deduct some expenses that benefit your spouse, even if their presence on your trip is purely personal. For example, your hotel room may cost the same whether one or two people occupy it, and a rental car costs the same whether you have one or two people riding in it. So you can fully deduct the cost of your hotel room and rental car, even though your spouse is participating.
On the other hand, two airline tickets cost more than one. So, while you can fully deduct the cost of your airfare, the additional cost for your spouse should be excluded.
Travel outside of the United States
Special rules apply to travel outside of the U.S. While these rules are explained in great detail in IRS Publication 463, one rule we want to highlight is that your trip is considered entirely for business if you travel outside of the U.S. for business for more than one week and spend less than 25% of the time on personal activities.
Say you and your employee spouse attend a business training in Geneva, Switzerland. The training lasts seven days, and you spend two days sightseeing afterward. Because you only spent two out of nine total days abroad on non-business activities, the trip is considered entirely for business, and you can deduct all of your airfare, meals, lodging, and other related expenses.
Documenting deductible travel expenses
If you plan to claim a deduction for your spouse’s travel, remember that if the IRS ever questions it, the burden of proof lies with you. The IRS tends to scrutinize travel and meal expenses, as these categories are prone to abuse.
If you plan on deducting your spouse’s travel expenses, maintain thorough records documenting their role in your business, the purpose of their trip, and a detailed account of their activities during the trip. Save all receipts and invoices from flight tickets to hotel bills to support your deductions.
Consult with a trusted advisor
When in doubt, it’s always best to consult with an experienced tax professional who can provide personalized guidance tailored to your business and ensure you remain compliant with IRS regulations.
Business trips can offer a wonderful opportunity to mix work with some relaxation, especially when your spouse accompanies you. While the general rule is that personal expenses are non-deductible, exceptions exist based on your spouse’s role and the trip’s purpose.
If you’re interested in taking the next step in navigating the tax implications of your business decisions, check out our ROI page to see if you’re a good fit for a complimentary tax analysis with Cerebral Tax Advisors. We’re happy to show you how we can help maximize your tax deductions and boost your bottom line.