Dear Sass, I’ll be attending the IDAL convention in Virginia this summer and have always wondered about the tax deduction for business trips …can you shed some light on this so I can correctly turn in expenses for my tax deduction at the end of the year?
So glad you asked! As you know boarding a jet plane is on my top ten list, and having the facts straight will not only put your mind at ease but give you the biggest legal deduction when Uncle Sam comes calling. Listen up… this is my personal favorite way to travel and the best way to see the country and maximize the deductions! It’s pretty simple and makes sense and requires a little math and tracking but with a little effort and record keeping you will be well paid at deduction time!
First, the actual costs of travel (e.g., plane fare, cab to airport, etc) are deductible for out-of-town business trips. You are also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they are ‘personal’ i.e., not connected with business although, as with all deductible meals, only 50% of the cost is allowed (80% is allowed for long haul truckers, certain airline, train and bus employees, and certain merchant mariners) Lavish, extravagant or unreasonable expenses for both meals and lodging are not allowable and can get you looked at quickly under a microscope! If you (like SOME people I know … lol) love fine five star hotels, consider absorbing the difference and turning in the ‘usual and customary’ expense, then everyone goes home happy ( and sleeps well!)
Personal entertainment costs on the trip aren’t deductible, unless you are entertaining a customer but business related costs such as dry-cleaning, phone calls, and computer rentals are.
Some allocations may be required if the trip is a combined business/pleasure trip. If you fly to convention for four days of classes and business seminars and then stay on for an additional period of vacation only the cost of meals and lodging for the business days are deductible – not for the personal days. However the cost of the travel itself (plane fare etc.) can be deducted in its entirety if the trip is primarily business. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each, although this isn’t the sole factor.
If the trip doesn’t involve the actual conduct of business but is for the purpose of attending a convention, seminar etc. IRS checks the nature of the meetings to make sure they are not vacations in disguise. Be careful to save materials helpful in establishing the business or professional nature of this travel.
The rules for deducting the costs for your spouse if they accompany you are very restrictive. No deduction is allowed (even if his or her presence has a bona fide business purpose) unless they are employed by you or your company and their travel is also for a business purpose.
If your spouse is your employee, (or an officer in your LLC or S Corp) then you can deduct his or her travel costs if her presence on the trip serves a bona fide business purpose. Simply having your spouse perform some incidental business service, such as typing up notes from a meeting, isn’t enough to establish a business purpose. In general it isn’t enough for her presence to be ‘helpful’ to your business pursuits – it must be ‘necessary.’ In most cases, a spouse’s participation in social functions, even as hostess, isn’t enough to establish a business purpose. That is, if her purpose is to establish general goodwill for customers or associates, this is usually insufficient. Further if there is a vacation element to the trip, i.e., if your spouse will be spending time sightseeing, etc., it will be more difficult to establish a business purpose for her presence on the trip. On the other hand, a bona fide business purpose exists where your spouse’s presence is necessary to care for a serious medical condition that you have.
If your spouse’s travel satisfies these tests, the normal deductions for business travel away from home can be claimed, these include the costs of transportation ( flights, car rental, fuel, and any additional insurance, meals, lodging, and other incidental costs such as dry cleaning and phone calls, etc.)
Even if your spouse’s travel doesn’t satisfy the requirements, you still deduct a substantial portion of the trip’s cost because the rules do not require you to allocate 50 % of your travel costs to your spouse. You need only allocate to her any additional costs you incur for her. For example in most hotels the cost of a single room isn’t that much lower if at all for one person as it is for two. (I rarely find any difference!) In the case that it is let’s say the hotel cost is $150 per night for one person but $200 per night for two, the disallowable portion of the cost allocable to your spouse would only be $50. If you drive your own car or rent a car, the cost will be fully deductable even if your spouse is along. Cab fare is deductable as long as you are present. So only their meals and any separate costs incurred by your spouse wouldn’t be deductible.
I am continually surprised at the number of people I see at conventions paying cash for cab fare, drinks at the bar, tips in a restaurant, etc. A simple habit if keeping all receipts in an envelope marked with the date and location and purpose of the trip then kept in a file at home marked ‘business trips’ If you pay online for your convention registration and classes be sure and print a receipt. This will help you track and prove your deductible expenses at years end. Many people share a room, in this case ask for two receipts and make a note that this was a shared expense.
If you are out of town for a weekend to bid a job or find it necessary to view walls or techniques in another city the same rules as above apply but it is suggested you make a log of the day stating where and when you were at such and such address and what you were doing and for which client, so you could prove if necessary that this was indeed a trip with the main purpose being business. Include this log in the envelope that contains the receipts from the day and file under “business trips”
Please note additional rules and regulations apply for foreign business travel.
If you have air miles it is best to save those for use on a personal trip since the cost is deductible when flying on a business trip. I personally never use my miles to pay for a business trip. I am a miles hog and highly recommend becoming savvy regarding earning air miles! First do your research and find a card that offers double miles on every purchase, even if the card charges a per year fee it is worth the extra miles in the long run. Secondly, I charge everything…. I mean everything… then I pay one bill at the end of the month and bank double miles. This is a useful and underused travel tool. Did you know you can charge your monthly paint bills, utilities, and car insurance, basically just about any bill you need to pay except usually bank loans. Some of these may be set up to automatically charge to your card each month, others you need to call or go online monthly to make the draft. Either way it’s a simple way to earn miles with money you have to spend anyway.
Now get your envelope ready and I’ll see you at convention in Virginia July 20-24th … feel free to buy me a drink… just save your receipt!
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Information found in this article should be partially credited to: Thomson Reuter/PPC