As we transition to a post-pandemic market, business travel is getting back to normal. With the increase in travel frequency, some professionals and small business owners may opt to bring their spouse on work related trips. While it certainly may be more enjoyable to travel with a companion, it is important to understand what is and is not tax deductible when it comes to business travel.
Is your spouse an employee?
The rules for deducting a spouse’s travel costs are very restrictive. To deduct these costs, he or she must be an employee of the business. Even if their presence serves a legitimate business purpose, if they are not an employee, the costs are not tax deductible.
When a traveling spouse is an employee, they must be on the trip for a business purpose—would they have come along on the trip if they were a nonrelated employee? This can’t be performing minor incidental services or serving a social or goodwill purpose meeting with clients. If there is a vacation element to the trip, such as sightseeing, it becomes more difficult to establish a clear business purpose.
If a clear business purpose is present, the normal rules for deducting business travel would apply. This includes costs such as transportation, meals, and lodging. Not all these costs are fully deductible, some may be limited to 50% of the amount spent.
What if your spouse isn’t an employee?
In this case, a substantial portion of the trip’s costs may be deducted. The rules do not require the costs to be split 50% between the business owner and spouse. Only any additional costs incurred would not be deductible.
For example, if staying at a hotel, a single room may not cost much less than a double. If a single room is $150 and a double room $200, then only the $50 difference cannot be deducted—not half of the cost, or $100. If the cost is not increased by having an accompanying spouse, the normal rules to establish deductibility on the amount spend would apply.
Have questions?
There are rarely simple answers to tax questions, especially when it comes to small businesses. For more specific guidance and advice, the tax professionals at Wegner CPAs are here to help with questions on this any other topics that come up for your or your small business.
