Tax Deductions: Business Travel

The IRS on travel expenses: for tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.

In an earlier post  we discussed what the IRS recognizes as adequate recordkeeping. Keeping your receipts is necessary and you’ll need to document a few items on the receipt and in your accounting tool.

IRS requirements for proving business purpose:

  1. Identify the business reason for the travel. This includes benefit gained or expected to be gained. Example: trip X was for continuing education, convention/networking, or marketing effort.
  2. Where did you go? Identify the place you traveled to that includes city and state.
  3. Dates you left and returned and number of days spent on business. This means that your travel can include both personal and business as long as you identify the business portion.
  4. Cost of each separate expense for travel, lodging, and meals. No more lumping everything together. If audited, the IRS will want them broken out by category.

a. Sample categories to get started:

I.    Airlines
II.   Hotel/Lodging
III.  Bus & Train
IV.  Taxi/Cab, Limousine
V.   Car Rental (and gas during rental period)
VI.  Tips

  1. Incidental expenses. The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships.

a. Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken.
b. There is an optional method for deducting incidental expenses that is $5/day. As always, we recommend verifying this with your tax professional to see if this method is appropriate for your needs.

ADI Pro Tip: You don’t need to add a bunch of accounts to accomplish this. You can use your memo field to break down the detail and at year-end export the data and sort it. Just use keywords at the start, followed by location, then date, and finally business purpose.

For more detailed info, here is a chart of Travel Expenses You Can Deduct from irs.gov

This chart summarizes expenses the IRS has indicated that you can deduct when you travel away from home for business purposes.

IF you have expenses for… THEN you can deduct the cost of…
transportation travel by airplane, train, bus, or car between your home and your business destination. If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If you travel by ship, see Luxury Water Travel and Cruise Ships (under Conventions) for additional rules and limits.
taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between:

  • The airport or station and your hotel, and
  • The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
baggage and shipping sending baggage and sample or display material between your regular and temporary work locations.
car operating and maintaining your car when traveling away from home on business. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses.
lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meals include amounts spent for food, beverages, taxes, and related tips. See Meals for additional rules and limits.
cleaning dry cleaning and laundry.
telephone business calls while on your business trip. This includes business communication by fax machine or other communication devices.
tips tips you pay for any expenses in this chart.
other other similar ordinary and necessary expenses related to your business travel. These expenses might include transportation to or from a business meal, public stenographer’s fees, computer rental fees, and operating and maintaining a house trailer.

For more detailed info, here is a chart of Travel Expenses You Can Deduct from irs.gov

There are a few special rules to be aware of:

Cruise Ships – deduct up to $2000/year of your expense to attend for a convention, seminar or similar meeting.  All ships that sail are considered a cruise ship by the IRS.  Two written statements will be required – one that states total days and number of hours for business purposes, along with the business content; a second one from the group that sponsored the event outlining the business activities and estimated number of hours.

ConventionsConventions – you can deduct expenses for your travel but you’ll need to exclude any for your family if they tag-a-long.  Conventions that are investment, political, social, or unrelated to your business will not be deductible.  Conventions outside of North America may be FUN and may not be 100% deductible.  Due to the rules for traveling outside of North America, ADI Accounting Team suggest consulting with your tax professional for more guidance.

ADI Pro Tip: This article addressed more detail than we have normally seen in the past 20 years from business owners.  The ADI Team business travel for this year came under some extra special review from our own tax professional, and we had to go back and recreate all those categories. We’d love giving you these examples so you can learn from our mistakes!

Keys to success include:

  1. Keep your receipts – if you love technology, use your camera to capture them; paper/tactile lover use travel envelopes to keep and gather all the items plus the envelope will give you the opportunity to write the key travel info on.
  2. Use your accounting tool to summarize that info as you update it.  You can easily export and sort it for a work paper at the end of the year.
  3. Keep it all together – the receipts, the travel log, and the detail mentioned above.  ADI Accounting Team recommends going paperless when you can since most POS receipt paper isn’t archival for a seven year period.

Don’t let this extra level of detail stop you from traveling!  A strong bookkeeping process will help capture this info when it is fresh in your memory.  If this has you clenching your jaw or looking at your receipt pile in a panic, schedule a free consult to discuss your options with us.  In the meantime, we’d love to hear (and other business owners would love the options)how you like to capture your business expenses while traveling below in the comments.

Resource
IRS Publication 463

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