Deducting Business Travel Expenses
As convenient as it is that the internet enables entrepreneurs from all over the world to connect with one another, sometimes instant messages and video chats simply don’t compare to good old fashioned face to face interactions.
Whether you’re taking the train across town to pick up supplies, driving to another state for a business conference, or flying to a different country to negotiate with a foreign client, the trip will always end up costing you something. Oh sure, there should be plenty of financial reasons and opportunities for profit to justify going, otherwise you wouldn’t have bothered in the first place, but the expenses can still cut into your bottom line more than you’d prefer.
Thankfully, many of the expenses can be deducted from your taxes!
Mind you, I said “many,” not “all.”
While the IRS does allow multiple forms of cost related to travel for business purposes to be written off, it doesn’t allow absolutely all of them. What’s more, even the ones it does allow aren’t always completely covered, sometimes only a portion of the cost can be deducted. Overlooking valuable deductions can cost you and your business a lot of money, but trying to write off the wrong things can get you in a lot of legal trouble.
While only an accountant or tax expert can tell you exactly what you can and can’t write off, there are certain costs that generally qualify, and having proper records of those costs prepared for you accountant will make their job much easier. With that in mind, I thought I’d use this blog to cover the basics, giving you an idea of what records to keep and what expenses to start recording.
Let’s start by going over the legal definition of business travel itself.
Short distance business travel tends to be defined as driving for business related purposes, such as to visit a client’s office or pick up supplies for your business. Long distance business travel tends to be defined as using a plane, train, ship, or car to cover a vast distance to reach a business location, such as a convention or client in another state, especially if it involves traveling for more than one day and will require the traveler to stop for food and rest during their journey.
On the other hand, commuting to work from home and vice versa does not typically count as business travel if it is within the same metropolitan area. Any costs related to this kind of travel would be considered “daily travel expenses,” and cannot be deducted. In the case of self-employed entrepreneurs or those who work from a home office, then driving to and from locations they temporarily do business with may qualify as a business travel expense, but it depends on the exact circumstances and local laws. It’s worth noting that if the travel has aspects of pleasure in addition to intentions of business, such as using a trip to a conference in an exotic local as an opportunity to bring your family on vacation, then only some of the expenses can be deducted while others cannot. As an example, your plane ticket and hotel room may be deductible, but those of your family who are not involved in the work you are doing cannot be deducted.
The most common deductible business travel expenses are transportation charges (plane, train, car, taxi, limo, shuttle, etc.), baggage fees and shipping of work related materials, rental car expenses, lodging, meals, laundry services such as dry cleaning, business related phone calls and messaging, and other similar costs. In order to deduct these expenses, you must keep a record of all transactions (such as receipts or credit card statements) as well as written justification for why each one was necessary for your work. If you cannot prove you spent the money on a strictly work related reason, you will be unable to deduct the expense. Be sure to track the expenses as they occur, as trying to come up with amounts and explanations after the IRS gets suspicious can get you in more legal trouble.
As I mentioned before, some expenses can only be partially deducted, such as entertainment costs like taking your client to a restaurant or seeing a show at a convention. What’s more, the rates for business expenses of international travel can be dependent on where you’re going, when you’re going, and how long you’ll be there, with all those rates changing in value from year to year or even within the same year.
It bears repeating: these are useful tips for planning ahead, but they do not constitute genuine legal advice. Use what you’ve learned from this blog to give you an idea of what to keep track of as well as a guide of how to invest your travel budget to maximize returns, but always confirm with an accountant or tax expert before trying to write any of it off. Even if you yourself have extensive tax experience, you should at least stay up to date by checking the IRS website.