Understanding Incentive Trip Tax Deductions
In 2025, the IRS continues to allow deductions for certain business-related travel expenses, such as corporate retreats and incentive trips. However, the key lies in properly documenting these trips and ensuring they meet specific criteria.
What Qualifies as a Tax-Deductible Incentive Trip
The IRS allows organizations to deduct necessary travel costs.
Tax deductions for business travel let companies subtract travel costs from their income, lowering the amount they pay in taxes. With U.S. companies spending a total of $421.1 billion on travel in 2022, according to the Global Business Travel Index™, these deductions became a big deal and without them, these expenses would directly affect net profitability.
According to the IRS - Publication 463, for an incentive trip to be tax-deductible, it must be:
- Ordinary and necessary for your business;
- Directly related to the active conduct of your trade or business;
- Not extravagant under the circumstances;
The primary purpose of the trip should be business-related, with any personal activities being incidental. Companies must be able to show that incentive trips have a clear business purpose, such as improving employee performance. Besides, keeping proper documentation of the trip's objectives and outcomes is essential for tax deductibility.
IRS Guidelines for Business Travel Deductions
The IRS provides clear guidelines for deducting business travel expenses, emphasizing that these expenses must be both “ordinary and necessary” to qualify. According to the IRS, an ordinary expense is common and accepted in your industry, while a necessary expense is one that is helpful and appropriate for your business.
Qualifying criteria for business travel deductions include:
- The trip's primary purpose must be business-related
- The duration should be reasonable for the business purpose
- Business activities should occupy the majority of the trip's schedule
- Expenses must be proportionate to the business benefit gained
Deductible expenses typically include transportation costs, lodging, 50% of meals related to business activities, and other necessary travel-related costs. It's crucial to note that personal expenses or those used to determine your business' cost of goods sold are not deductible.
Examples of deductible expenses:
- Airfare and ground transportation
- Hotel accommodations
- Business-related meals (50% deductible)
- Conference fees
Non-deductible expenses:
- Personal sightseeing or entertainment
- Expenses for family members accompanying you
- Lavish or extravagant expenditures
Requirements for Tax-Deductible Incentive Travel
Not everything you spend on your incentive trip will be tax-deductible. However, it’s crucial that you focus on making it a business escape above a leisure offsite. Here are a few key highlights you must remember:
Substantial Business Activities
For incentive travel to be tax-deductible, it must include substantial business activities. According to DLM, if your offsite agenda shows a majority (at least 60%) of business-focused activities, you can usually write off the cost of the entire retreat, even the portion that might be considered “leisure”.
The IRS doesn't provide a specific percentage, but generally, business activities should occupy the majority of the workday.For example, you take your team on an incentive trip to Hawaii where you have scheduled daily morning training sessions, afternoon team-building activities, and evening strategy meetings.
Despite some free time for relaxation, your company can successfully claim deductions by demonstrating that the majority of the trip's scheduled time was dedicated to business activities.
International vs. Domestic Considerations
Considerations vary according to your incentive trip location: domestic or international. Where’s what you need to take into account:
- Qualifying Domestic Business Travel: For domestic travel to qualify, the primary purpose of the trip must be business-related. Deductible expenses include transportation, lodging, and 50% of business-related meals. According to a survey by the Global Business Travel Association, a third of business travelers typically extend their trips by at least one day to include personal activities, emphasizing the need to understand what can and cannot be deducted.
- International Travel Rules: International travel has more stringent requirements. If the trip is entirely for business, all related expenses are deductible. If the trip combines business and personal activities, only the expenses directly related to the business portion are deductible. The IRS may consider a trip outside the US to be entirely for business if it lasts a week or less.
Common pitfalls to avoid:
- Insufficient documentation: Always keep detailed receipts, otherwise deductions can be disallowed if audited.
- Over-deducting: Don’t claim personal expenses as business expenses. It can lead to penalties and interest on underpaid taxes.
- Ignoring exceptions: Pay special attention to exceptions like international travel and conventions.
Deductible Expenses
To turn your company’s incentive trip into a tax-savvy adventure, let's break down the expenses you can potentially write off and save your organization some money.
- Traveling Costs: Your travel expenses to and from the location are, in general, tax-deductible. Any detours won’t be deductible.
- Accommodation: Lodging often takes the biggest portion out of your incentive trip budget, typically 25-35% of the total cost. However, these expenses are usually deductible. Regardless of your incentive travel location, as long as it's for business purposes, you can write it off.
- Meals & Team Drinks: Meals during your corporate retreat can still be tax-deductible. Keep it reasonable and business-focused. Before the Tax Cuts and Jobs Act (TCJA), most meals and entertainment expenses were 50% deductible, but the new law curtailed their deductibility.
- Activity Expenses: Activities that have a clear business purpose, like workshops or professional development sessions, are typically tax-deductible. A spa day with your team? Probably not. Choose activities and events that enhance skills or address workplace challenges to stay on the right side of the IRS.
Documentation Requirements
Keeping all documentation from your incentive trip will make your life easier when it’s time to do your company’s taxes. Here are a few things to keep in mind:
Business Purpose Documentation
To claim tax deductions for incentive travel, businesses must keep all documentation proving the trip's business purpose.
The IRS requires:
- Trip purpose
- Departure and return dates
- Number of business days
- Receipts for all expenses
- Detailed itineraries showing business activities
- Meeting agendas
- Documentation of performance metrics or goals tied to the incentive trip
Using apps or dedicated software for tracking expenses can streamline record keeping.
TeamOut Advice: Create a written agenda that clearly outlines your business activities. This will be your safeguard if the IRS comes calling. It's the structured problem-solving workshops and strategy sessions that'll help you justify your retreat’s costs to the tax authorities. Besides the records mentioned above, the IRS requires receipts for all lodging expenses and any other business-related costs exceeding $75.
Meeting Agendas and Schedules
Detailed agendas and schedules are important for proving the business purpose of the trip. To simplify the process for you, we advise you to create a retreat checklist to make sure no relevant plans or logistics are left out.
Your incentive trip agenda should include:
- Dates, times, and locations of all business activities
- Topics discussed in meetings or training sessions
- Names and roles of attendees
A sample agenda might include morning strategy sessions, afternoon team-building exercises, and evening networking events. Remember that business-related activities have to surpass team-building and relaxation experiences.
Participant Documentation
For participant documentation, businesses should maintain:
- A complete list of attendees, including their roles in the company
- Documentation of business activities each participant engaged in during the trip
The IRS may require this information to verify the business purpose of the trip and ensure compliance with tax regulations.
Step-by-Step Guide to Claiming Incentive Trip Deductions
Proper planning is essential for a smooth and tax-deductible incentive trip. To make sure you're prepared, use this checklist:
Pre-Trip Planning and Documentation
Planning and documentation start way before your company’s incentive trip. Here are a few things to take into consideration:
- Create and share with the team a document outlining business reasons for the trip
- Write performance metrics and share them with your team
- Prepare daily itineraries that include business activities
- Verify everyone’s travel documents (passports, visas)
- Prepare a list of participants and their roles in the company
This list doesn’t replace a pre-trip meeting. Arrange for necessary business appointments and meetings with your team.
During-Trip Record Keeping
Maintaining accurate records during the trip is fundamental for supporting your deductions.
Best practices for record-keeping during the trip:
- Document all business activities with meeting agendas and minutes
- Track time spent on business vs. personal activities
- Use a mobile app or digital tool to organize receipts and expenses
- Take photos of receipts as backup
Post-Trip Tax Filing Requirements
After the trip, it's time to file your tax deductions. If you have all the documentation organized, it’s much easier to deduct your incentive trip.
Steps for filing tax deductions post-trip:
- Compile all receipts and documentation
- Separate business expenses from personal expenses
- Calculate the total deductible expenses
- Maintain records for at least three years after filing
💡 TeamOut Advice: Don’t forget to cross-check with IRS Publication 463 on deductible expenses. Always consult with a tax professional or incentive travel planners to ensure compliance with the latest IRS regulations.
Start Planning Tax-Efficient Incentive Programs with TeamOut
Understanding the tax implications of incentive trips can be complex, but with careful planning and documentation, they can indeed be tax deductible. The key is to make sure your trip is primarily business-focused.
Keep meticulous records of all expenses and maintain a detailed itinerary to support your deductions.If you're looking to plan a tax-deductible incentive trip that aligns with your company's goals and budget, consider partnering with TeamOut.
With our extensive network of 4,000 venues worldwide and experience in organizing over 600 events, we can help you design an incentive program that motivates your team while also optimizing your tax benefits.
Our expert planners can assist in finding the perfect location while potentially saving you up to 30% on venue costs.
Ready to plan an incentive trip that rewards your employees and benefits your bottom line?
Reach out to TeamOut today and let us help you craft an outstanding trip that's both motivating and tax-efficient.
.png)
