Traveling for Business? Here’s What You Can Deduct
Maximizing Your Business Travel Deductions as an Entrepreneur
In today’s fast-paced business world, entrepreneurs often find themselves on the move, meeting clients, attending conferences or exploring new markets. As a business owner, every penny counts, and understanding where you can save or claim back funds can significantly impact your bottom line. One often-overlooked avenue for cost-saving is maximizing tax deductions, especially those related to business travel.
Defining Home & Travel for Tax Purposes
Your ‘home’ for tax purposes refers to your primary place of business or employment. Now, when traveling away from this designated ‘home’ for work-related activities, you can incur ‘ordinary and necessary’ expenses.
- Ordinary Expenses: These are the common costs accepted in your line of business.
- Necessary Expenses: These costs are helpful and fitting for your business. It is worth noting that an expense doesn’t have to be indispensable to be classified as ‘necessary’.
What Can You Deduct?
Following is a summary of expenses you can deduct when you travel away from home for business purposes.
- Transportation Expenses: Whether flying, taking a train, hopping on a bus, or driving, the costs of getting from your home to your business destination are deductible. This includes baggage fees, Uber rides to and from the airport, your client’s office or meeting venues. If you use your car for business travel, you can deduct actual expenses or use the standard mileage rate. Don’t forget to claim business-related tolls and parking. And if you rent a car for your trip? That’s deductible too.
- Lodging: If you have an overnight business trip, you can deduct lodging expenses such as hotel stays, Airbnb stays and other accommodations.
- Meals: You can claim 50% of your meal expenses – this includes food, drinks, taxes and tips. There are two methods to tally up these expenses:
- Actual Cost: As it sounds, this method involves recording every meal expense.
- Standard Meal Allowance: Using the federal M&IE rate, you do not need to track every meal’s cost. Still, you must document the time, place and business purpose.
- Entertainment: Generally, entertainment expenses are not deductible. But, say you throw a holiday bash for your employees or sell entertainment services to clients – those are exceptions. And if you have ever wondered about food and drinks at entertainment events, they can be considered meal expenses if they are billed separately from the entertainment cost.
- Miscellaneous Expenses: Think of those additional charges that crop up when you are on the road. Wi-Fi fees at the hotel? Deductible. Need a suit pressed for a meeting? Dry cleaning is also covered.
Keeping Track of Expenses
The IRS requires tangible records of your business-related travel expenses. If your documentation is not up to par, be prepared for potential deductions to be disallowed.
Common Mistakes to Avoid
You cannot deduct any travel expenses if the primary purpose of your trip is personal, such as a family vacation. However, if you mix business with some leisure, ensure business days outnumber personal days. Also, remember only expenses associated with business activities count. For globe-trotters, be wary: special rules apply to international business travel.
Tax deductions, especially concerning travel, can be a maze. The rules are intricate, riddled with exceptions. Consider seeking advice from tax professionals before making decisions that could impact your business. It’s better to be safe than sorry. Contact an Adams Brown advisor to discuss your tax situation.