Come tax season, it seems that Uncle Sam is always looking for new ways to dip his hand into your pocket. But that doesn’t mean you can’t make the most from your return. Business expenses are one example. The IRS permits filers to deduct “ordinary and necessary expenses” incurred during the course of conducting business—including travel.
The wording of the law is intentionally vague—because what’s “ordinary and necessary” for one business may not be so for another. This gives you, the taxpayer, some leeway in what you choose to deduct as a “necessary or ordinary” expense.
Which Travel Expenses Are Commonly Tax-Deductible?
- Business Trip Transportation Costs
If the aim of the trip is work-related, the full cost of transportation (including airline tickets, taxis, rental cars, and fill-ups) is commonly deductible. If you’re using a private car, you may deduct .50¢ per mile as a travel expense (wear and tear on the vehicle) as well as gas.
- Lodging
The rules about deductions for lodging are quite specific. You may deduct lodging expenses for those days on which business was conducted. For example, if you take a 5-day trip to Miami but conduct business on only 3 of those days, you may only deduct 3 nights lodging for that trip on your return. The remainder is considered vacation and is your responsibility.
- Dining & Entertainment
The IRS understands that wining and dining is often part of business. Such events are deductible at half the total cost. So if you spend $50 on dinner, you may deduct $25. The 50% rule also applies to entertainment when experienced in the context of business (for example, seeing a play or show with a potential client).
- Staying on the Right Side of the (Tax) Law
If you are mixing business with pleasure, you’re going to want to play by the rules. The IRS scrutinizes business expenses with care, so it’s best to be on the safe side. Here are a few things you can do to help ensure that your business travel expenses will pass IRS muster.
- Schedule your business appointments in advance.
To take the business travel deduction, you must have at least one business contact scheduled and in place. Best to do this well before your departure date as the IRS requires a “prior set business purpose” for the trip. A cancellation by your business contact(s) can leave you footing the entire travel bill as a personal expense.
- Make the trip mostly business.
A business trip should look like a business trip if reviewed by an IRS agent. So be sure that your trip is mostly business (with some pleasure mixed in). This lets you take advantage of some cost-saving opportunities. For example, if your business travel days (the days you’re actually in transit) are longer than your typical desk day, you may deduct 100% of the plane ticket, car rental, etc. Remember too that you can deduct personal expenses attendant to business, such as basic grooming supplies. On days deemed business days’ you’ll also be able to deduct taxi trips, auto rentals, and 50% of your food. For expenses $75 or over, keep your receipts; for lesser expenses, simply keep a record of the day, amount, and nature of the expense.
- Schedule your appointments wisely.
A little advanced preparation and clever scheduling can both leave you some recreation time between business appointments as well as reducing your IRS obligation. For example, you can sandwich a weekend between business meetings. Say you travel to your destination on a Thursday and see clients on both Friday and Monday, you may be able to deduct the weekend days as well, even though you were at the beach.
- Family Expenses Are Not Deductible.
If your family is accompanying you on your business trip their personal expenses are not subject to the same grace as yours. For example, if you and your spouse and two kids are making the trip together and decide to get 2 hotel rooms, you may only deduct 50% from the cost of your room.
Note for International Travelers
Travel outside the U.S. offers some particular advantages when it comes to deductions. For example, you are required to spend only 25% of your days conducting business. If you spend less than that amount of time engaged in business activity, you may still deduct from your expenses on a prorated basis. That is, if you spend 4 days traveling and 1 day working, you can deduct 25% of your trip expenses.
Note for Self-Employed Taxpayers
These days, much of the nation’s workforce is self-employed, and many of those individuals travel for work. So what can you do as a self-employed worker to minimize your IRS obligation for business travel? Here are a few ideas…
- Schedule in advance and have your business meetings locked in before you go.
- Keep your receipts. The IRS understands that sometimes business and pleasure mix, but if you’re self-employed, you’re going to want to keep clear and specific records of your expenses. That means keeping receipts, even for the little stuff, and organizing your receipts by business vs. pleasure expenses.
- Only claim as business what’s business. Play it safe and claim deductions on only those events at which business was transacted.
- Using a personal vehicle? Track gas, mileage, and tolls. If you’re traveling within the U.S. using your personal vehicle, you are permitted to deduct .58¢ per mile, as well as parking and toll fees.
At Moskowitz LLP, we help our clients get the most from their returns. Have questions about business travel expenses or need assistance filing your return? Contact us today!