If you're self-employed, you may be able to deduct transportation, lodging, and/or meal expenses that you incur when you travel away from home for business. Similarly, if you're an employee of a company and you incur unreimbursed business travel expenses, you may be able to deduct these expenses on your federal tax return as miscellaneous expenses.

Overnight travel expenses

The following travel expenses are generally deductible when you're on an overnight business trip away from your principal place of business:

• Transportation expenses including travel by airplane, bus, train, or car between your home and your business destination
• Taxi, commuter bus, and airport limousine expenses
• Hotel or other lodging expenses
• Meal expenses (generally 50%)
• Telephone and fax expenses
• Tips
• Baggage charges (including baggage insurance)
• Entertainment expenses, subject to certain limitations

Meal expenses

In order to deduct meal expenses (with the exception of expenses for meals directly related to or associated with business--e.g., entertaining a client), you generally must be away from your normal place of business on a business trip that necessitates your staying away overnight.

Example: Say you fly out of town to meet with a client, stop to eat lunch at the airport before going to the client's office, then return home that evening. The cost of your airfare is deductible, but the cost of lunch is not. However, if you had stayed overnight to meet a client the next day, all your meal expenses, as well as your lodging expense, would be deductible.

If you have not kept, or find it difficult to keep, specific records of allowable meal expenses while on business trips, you can opt for the per diem allowance allowed by the IRS without actual substantiation of the amount of the meal expenses. The amount, which covers meals and incidentals such as tips, ranges from $30 to $42 per day. Regardless of whether you deduct the actual cost of your meals or use the per diem allowance, you can generally deduct only 50% of the unreimbursed amount.

Keeping track of expenses

The IRS generally requires that you have two types of evidence to back up expense deductions:

• A written record (this can be in the form of a diary, accounting book, or other written record) that details the time, place, and business-related purpose of the travel expense or entertainment expense
• Documentary evidence, which can include itemized payment slips, receipts, or other written records showing you paid for specific travel or entertainment expenses

The records you keep for entertainment expenses should list the cost, the date and place of entertainment, the names of those entertained and your business relationship to them, the entertainment's business purpose and the nature of the business discussion or activity.

Receipts acceptable to the IRS must list the date, place, amount, and nature of the expense. Restaurant receipts must also indicate the number of people served and itemize any additional nonfood or beverage expenses. Hotels or other places of lodging must include an itemization of separate nonlodging expenses, such as phone calls, food, and beverages.

You should keep your travel, meal, and entertainment expense records for at least three years after the date on which you file the tax return on which the deductions are claimed.

Claiming the expenses

Employees incurring unreimbursed travel expenses may deduct them (on Schedule A) as miscellaneous itemized deductions subject to the 2% of adjusted gross income floor. If you are reimbursed for your expenses, you generally cannot claim them as deductions. However, that's not always the case; it depends on the type of reimbursement plan your employer uses.

If you're self-employed, rather than deduct these expenses on your Schedule A, you report them on your Schedule C.

Tip: Expenses reported on your Schedule C are not subject to the 2% adjusted gross income floor that would apply if these expenses were reported on Schedule A.

For more information, see IRS publication 463, Travel, Entertainment, Gift, and Car Expenses.