The Rules for Deducting International Business Travel Expenses

The end of 2013 marked “stronger than expected” growth in domestic business travel, according to the Global Business Travel Association (GBTA), and it’s only expected to increase further. And while international business travel didn’t experience as significant of a jump, the GBTA expects that 2014 will be a different story. A recent report indicates that international outbound travel for business should grow 12.5 percent to $36.7 billion. With statistics like those, it’s important for business travelers to understand what is—and is not—tax deductible.

Tax Deduction Rules for International Business Travel

Foreign travel expenses are subject to some limitations that are not applicable if the business trip is within the United States. Some of an individual’s foreign travel expenses may not be deductible if he or she takes part in substantial non-business activity during the trip. Taxpayers who travel outside the U.S. for longer than one week or spend less than 75 percent of their time on business are subject to allocation rules, which operate to partially disallow their expenses, unless they had no control over the trip arrangements or the vacation portion was not a major consideration of making the trip. The general rule is to allocate expenses, including meals and lodging, between business and non-business on a day-to-day basis. Each day is either entirely for business, or it is considered to be a non-business day. A day counts as entirely for business if the taxpayer’s principal activity on such day was the pursuit of a trade or business. In addition, a day is counted as a business day if any of the following factors are present:

• The individual was traveling to or from an overseas destination in pursuit of a trade or business.
• The individual’s presence outside the U.S. on that day was required at a particular place for a specific and bona fide business purpose.
• The individual was prevented on that day from engaging in the conduct of his or her principal business activity due to circumstances beyond his or her control.
• The day was a Saturday, Sunday, legal holiday or other reasonably necessary stand-by day, which intervened during the course of the taxpayer’s trade or business.

Cruise Ships: A limited deduction (to a maximum of $2,000 annually) is permitted for conventions on cruise ships if the ship is of U.S. registry, all ports of call are in the U.S., or its possessions and the meeting is directly related to the taxpayer’s trade or business. Rigorous reporting requirements must be satisfied, including written statements by both the attendee and an officer of the sponsoring organization.

Foreign Conventions: A foreign convention under the tax law is considered one held outside the U.S., its possessions, the Trust Territory of the Pacific Islands, Canada or Mexico. The deductibility of expenses for foreign conventions is subject to a higher standard than for conventions held in the U.S. The taxpayer must establish that the meeting is directly related to the active conduct of his or her trade or business and that it is as reasonable to be held outside the North American area as within it.

For a stateside convention, the taxpayer merely has to show that his or her business duties and responsibilities are related to the agenda of the meeting even though it may not deal with the specific duties of the taxpayer’s work.