When a self-employed individual embarks on a business trip outside the U.S., and the journey is entirely for business, all ordinary and necessary business travel expenses are deductible—just as if the trip were within the U.S. However, if the trip also includes a vacation, special rules dictate which travel expenses to and from the destination are deductible, when other business travel expenses like lodging, meals, local travel, and incidentals can be deducted, and when they must be allocated.
Note: The Tax Cuts and Jobs Act of 2017 temporarily suspended the deduction of miscellaneous itemized expenses, including employee business expenses like travel, through 2025. So, this guidance applies solely to self-employed individuals during the 2018-2025 period.
2024 Travel Tax Pointers 📌
Whether you’re visiting nearby countries or exploring more distant destinations in Europe or beyond, here are some essential travel tax pointers:
Primarily Vacation
If the trip is mostly for vacation with only a few hours spent on business activities like attending seminars or meeting foreign colleagues, the expenses for travel to and from the destination are not deductible. Other travel expenses need to be allocated on a day-by-day basis, with only the business portion being deductible.
Primarily Business
If the trip is primarily for business and meets one of the following conditions, the travel expenses to and from the destination are fully deductible (as they are for domestic travel):
- ✅ The travel outside the U.S. is for a week or less (seven consecutive days, excluding the departure day but including the day of return).
- ✅ Less than 25% of the total time outside the U.S. is spent on non-business activities. If 25% or more of the time is spent on non-business activities, a day-by-day allocation of all travel expenses between personal and business activities is necessary, with only the business portion being deductible.
- ✅ The individual can prove that a personal vacation was not a significant factor in planning the trip.
- ✅ The taxpayer did not have substantial control over arranging the trip. (This is unlikely to apply to self-employed individuals, who usually have substantial control over trip arrangements.)
When deciding what counts as business and non-business time, business days include days en route to or from the business destination by a reasonably direct route, days when actual business is conducted, weekends or standby days between business days, and days when business was scheduled but canceled due to unforeseen circumstances.
Non-business days include days spent on non-business activities, as well as weekends, holidays, and other standby days at the end of business activities if the taxpayer stays for personal reasons.
💡 Foreign Conventions, Seminars, or Meetings
For tax purposes, travel expenses to attend a convention, seminar, or similar meeting outside the North American area are not deductible unless:
- 1️⃣ The meeting is directly related to the taxpayer’s trade or business, and
- 2️⃣ It’s “as reasonable” to hold the meeting outside North America as it would be within it.
The IRS defines the “North American area” broadly, covering the U.S., Canada, Mexico, Bermuda, several Caribbean nations, U.S. territories like American Samoa, and some Central American countries.
🚢Cruise Ship Conventions
To deduct the cost of attending a business-related convention on a cruise ship, the ship must be U.S.-flagged, and all ports of call must be within U.S. territory. The maximum deduction is limited to $2,000 per attendee, with strict substantiation requirements, including signed statements from both the taxpayer and an officer of the convention sponsor.
💵 Spousal Travel Expenses
Generally, deductions are not allowed for travel expenses incurred by a spouse, dependent, or employee accompanying the taxpayer on a business trip unless:
- 1️⃣ The spouse is an employee of the taxpayer,
- 2️⃣ The travel serves a bona fide business purpose, and
- 3️⃣ The expenses would otherwise qualify as deductible business travel expenses for the spouse.
Because spousal travel expenses are not deductible between 2018 and 2025, the third condition cannot be met. However, lodging costs for an accompanying spouse can still be deductible at the single rate, especially when there’s no difference in room rates for single versus double occupancy. Additionally, if the spouse travels in the same vehicle, no allocation is needed, so the entire business-related transportation cost is deductible.
Tax Deductions for a Foreign Business Trip Can Be Tricky
As you can see, determining the tax deduction for a foreign business trip that includes a vacation can be complex. If you need personalized tax guidance or assistance planning such a trip in 2024, don’t hesitate to reach out to us. We’re here to help make your business travels more tax-efficient.
Call us today for a free consultation, and let’s ensure your next trip is both productive and tax-smart!