To claim your travel expenses as a legitimate tax deduction for your business, the IRS says you must be traveling primarily for business. To keep things simple, I will focus on the rules for business travel within the United States.
What constitutes a business trip? It depends on the circumstances surrounding the trip. Generally, it has to do with intent. If your trip is primarily for business it’s probably a legitimate business trip. For example, if you travel overnight for scheduled meetings with clients or prospects, it’s a business trip even though you might stay overnight with a friend or family member or incur some personal expenses along the way.
On the other hand, if you travel without any intention of doing business, probably not. Just because you do some incidental business while out of town, that doesn’t make it a legitimate business trip either. Your primary reason for traveling must be for business. Personal travel is a non-deductible expense. In your gut, you know the difference.
Legitimate expenses include:
- Lodging and meals
- In some cases incidental expenses like tips, wireless internet access, FedX charges, dry cleaning, etc. may be deductible as well
Make good use of weekends and holidays. The IRS allows you to count weekends and legal holidays as business days if they are bracketed by legitimate business. For example, you could attend a conference on Friday, schedule client meetings for Monday and deduct travel related expenses like those listed above that fall on the weekend or legal holiday. Personal expenses incurred over the weekend may not deductible, but lodging and other expenses related to your business travel are.
Days spent traveling to and from your destination also count as business days. If your business occurs on Friday and Monday as in the example above, both Thursday and Tuesday would count as business days if you use them to get to and from your destination. When a travel day counts as a business day, all your legitimate travel related expenses are deductible.
Get Educated. Business travel doesn’t always have to be for the purpose of meeting with a client. For example, you might also travel to take a course, get continuing education credits or attend a conference related to your industry or profession.
As a Certified Financial Planner® I am required to get 30 hours of continuing professional education each year. Those credits could be received in Orlando, San Diego or Washington D.C. (where I have family) just as well as here in Minneapolis.
Recently, Royal Alliance’s national conference was in Washington, D.C. Though I chose not to attend, I could have attended the conference and deducted it as a legitimate business expense even if I visited with friends or family while I was there.
Document, Document, Document. The best strategy to avoid problems at tax time is to know the rules, only take legitimate deductions and to document them well. When documenting your travel expenses, keep a tax diary. Write down actual expenses as they are incurred. Take detailed notes of where you traveled and the business purpose of your travel. Save your receipts and other documentation. The IRS doesn’t take well to undocumented, estimated expenses that are pulled together long after the fact.
Be sure to record the following types of items:
- Amounts spent each day on meals, lodging and transportation
- Save receipts for all lodging expenses no matter how small, as well as travel expenses greater than $75.
- Write down the dates you left for your trip and the date of your return
- Record where you traveled – city name, destination, etc. e.g., San Diego, CA, Fall 2008 Ed Slott Elite IRA Advisor Conference
- The purpose of your trip – met with Jane and John Client to review accounts and discuss new business opportunities.
I am not advocating that you take a trip just to write it off, but if you have legitimate business that requires travel, the IRS allows you to deduct these expenses. For more detailed information, download IRS Publication 463 at www.irs.gov.
This information is not meant as tax advice. Hopefully, however, you’ve learned some ideas that you can discuss with your tax advisor to leverage the legitimate tax deductions to which you may be entitled.
Always consult your tax professional regarding your specific tax case.
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