The tax deductibility of business travel expenses outside the U.S. is determined a little differently than travel expenses in the U.S. How much of your travel expenses can be deducted depends on whether the travel is considered entirely for business. This depends on the number of days you are outside the U.S. and how much time you spend on personal activities. There are exceptions by which the travel is considered entirely for business even if you spend some time on personal activities.
If you travel entirely for business, you can deduct all your travel expenses getting to and from your business destination, for example your airfare.
One of the exceptions for which your travel would be considered entirely for business is if you did not have substantial control over arranging the trip. According to the IRS, this would be the case if you are an employee and you are reimbursed for your travel expenses or you are paid an allowance, you are not related to your employer, and you are not a managing executive.
Another exception is if you are outside the U.S. for less than 7 consecutive days. In this case, you would not count the day you leave the U.S. but would count the day you return. Another exception is if you are outside the U.S. for more than 7 days, but you spend less than 25% of the time on personal activities. And a final exception is if vacation is not a major consideration in the trip, even if you had substantial control in arranging the trip.
Under all the exceptions, your travel is considered entirely for business and you can deduct all your travel expenses in getting to and from your business destination. If your travel is primarily for business but you also spend time on personal activities and do not qualify for one of the exceptions, you could deduct a proportional part of your travel expenses according to the number of business days and nonbusiness days.
Any days you spend traveling to or from a business destination are counted as business days. Extra days for side trips or nonbusiness activities would not count as business days. The travel must be by a reasonably direct route.
Days that your physical presence is required at a particular place for a specific business purpose count as business days, even if you spent most of the day on nonbusiness activities.
Days on which your principal activity during working hours is business-related count as business days. Business days also include any day you are prevented from working due to circumstances beyond your control.
Weekends and holidays count as business days if they fall between business days. But weekends and holidays after your business activity, when you remain at your business destination to engage in personal activities would not count as business days.
If you stop for vacation or other personal activities on your way to or from your business destination, you would have to adjust your deductible business travel expense by a portion of what it would have cost you to travel from the point where you leave the U.S. to your nonbusiness destination and back to the point where you return to the U.S.
For example, you travel from New York to Brussels on January 10 for business. You work in Brussels until January 18. Then you travel to Paris for 3 days of personal activities and returned to New York directly from Paris on January 21. You have 9 business days (January 10 to January 18) and 3 nonbusiness days (January 19 to January 21). The cost of the airfare from New York to Brussels is $600, from Brussels to Paris $100, and from Paris back to New York $700. The round-trip airfare between New York and Paris would have been $1,200.
To calculate your deductible travel expenses you would subtract the personal portion of the round-trip cost between New York and Paris: 3 nonbusiness days divided by 12 total days outside the U.S. = 3/12 times $1,200 = $300. Then you subtract $300 from your total airfares of $1,400 ($600 New York to Paris + $100 from Brussels to Paris + $700 from Paris to New York). Your deductible business expense for airfares would be $1,100 ($1,400 – $300).
If you go to a place at, near, or beyond your business destination, your nonbusiness travel expenses would not be deductible. You would have to adjust your deductible business expenses by subtracting a proportion corresponding to the number of nonbusiness days divided by the total number of days outside the U.S.
If in the previous example you traveled from Brussels to Barcelona for 3 days of vacation and then back to Brussels to return to New York, you could not deduct any of your travel expenses to Barcelona. You would have to reduce the deductible portion of the round-trip airfare between New York and Brussels by the personal portion of your trip. If the round-trip airfare is $900, you could deduct the business portion of the trip: 9/12 times $900 = $675.
During the business portion of your travel outside the U.S. you could deduct your business-related local transportation expenses such as bus, train, taxi fares, or a rental vehicle. You could deduct lodging expenses and could generally deduct 50% of business-related meal and entertainment expenses. Expenses in foreign currency should be converted to U.S. dollars at the prevailing exchange rate in effect when you pay the expenses. Or you could use the per diem rate for business-related lodging and meals. You can find the Foreign Per Diem Rates by Location on the U.S. Department of State website.
Foreign Per Diem Rates by Location, U.S. Department of State
Publication 463, Travel, Entertainment, Gift, and Car Expenses, IRS