The rules for travel outside the United States are somewhat different than the rules for travel within the United States; however, for both sets of rules, the treatment depends on how much of the trip is business related.
If a foreign trip is entirely for business or considered entirely for business, all travel expenses are deductible to the extent the deduction is not being taken in years 2018 – 2025 by an employee as a miscellaneous itemized deduction subject to the 2-percent of adjusted gross income limitation.
Under the following four exceptions, a taxpayer’s foreign trip is considered entirely for business even if the taxpayer did not spend all his time on business activities:
(1) The taxpayer (Realtors, Brokers, and Real Estate Professionals) was outside the United States for seven consecutive days or less (not counting the day the trip began, but counting the day it ended) and he spent time on both business and personal activities during the trip (Code Section 274(c)(2)(A); Regulation Section 1.274-4(c)).
(2) The taxpayer (Realtors, Brokers, and Real Estate Professionals) was outside the United States for more than seven consecutive days (counting both the day the trip began and the day it ended) and he spent less than 25 percent of his time on personal activities during the trip (Code Section 274(c)(2)(B); Regulation Section 1.274-4(d)).
(3) The taxpayer (Realtors, Brokers, and Real Estate Professionals) did not have substantial control over arranging the trip. This test is met if the taxpayer received a travel expense allowance or reimbursement from his employer and he is not a managing executive or 10-percent-or-more owner of the employer. A self-employed taxpayer does not meet this test (Regulation Section 1.274-4(f)(5)(i)).
(4) The taxpayer (Realtors, Brokers, and Real Estate Professionals) can establish that a personal vacation was not a major consideration in making the trip. This exception applies even if the taxpayer had substantial control over arranging the trip (Regulation Section 1.274-4(f)(5)(ii)).
If a taxpayer’s foreign trip is primarily for business reasons but he also spends time on personal activities during the trip, the travel costs for getting to and from the business destination must be allocated between business activities and personal activities. The taxpayer (Realtors, Brokers, and Real Estate Professionals) may only deduct the portion of such costs allocable to business activities (Regulation Section 1.274-4(f)).
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
Cell: (760)567-3110
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Email: DonFitchCPA@paylesstax.com
Website: https://www.paylesstax.com
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 03/18/2021 08:05)