You travel for business and you want to stay on the straight and narrow with your tax deductions, right?
If you are a business owner or you are considered self-employed, you can certainly take advantage of tax perks for business trips to help reduce your taxable income. The tax form that you will use to deduct these business related expenses depends on your business entity structure. Keep in mind that in order for a travel expense to be deductible, you have to be away from your “tax home,” which is your regular place of business. You are considered as traveling away from your tax home if:
- Your job duties require you to be away from the general area of your tax home, substantially longer than an ordinary day’s work, AND
- You need to sleep or rest to meet the demands of your work while away from home.
The IRS will typically allow the deduction of expenses that are ordinary and necessary. This means that you can’t order that overly expensive bottle of champagne on the room service menu, drink it all yourself, and expect the IRS to allow the deduction. However, if you are entertaining business clients and order that bottle of champagne, you will have a better chance at deducting 50% of that expense, which is considered an entertainment expense.
Non-business related entertainment is not a deductible expense. Even though after a long day you might consider that bottle of bubbly to be ordinary and necessary, know that the IRS will not.
What are considered tax perks for business trips?
Fares for transportation - Travel by airplane, train, or bus. You can typically deduct the cost of the ticket, or a percentage of the ticket cost.
Automobile expenses - Operating and maintaining your car when traveling away from home for business. You can deduct actual expenses or the standard mileage rate, as well as tolls and parking. For automobile rentals, you can only deduct the portion of the cost that equates to the business use of the vehicle. For example, if a person drives a vehicle 75% of the time for business related activities, he or she can only deduct 75% of the expenses related to that vehicle.
- Lodging and Meals - If your business trip is overnight - or long enough that you need to sleep or rest to properly perform your duties - you can deduct the lodging and the meals. There are some special rules for deducting meals.
- Telephone - Business telephone calls or communication using a phone, including faxing.
- Dry cleaning and laundry while you are traveling.
- Tips - Reasonable tips that you pay in connection to your business activities.
- Baggage and shipping.
- Taxis, commuter bus, airport limousine. Fares for these and other types of transportation that take you between the airport or station and your hotel, AND the hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
Now before you get all excited about tax perks for business trips, take note of a few words of caution. Travel expenses are deductions that the IRS and other taxing agencies examine very carefully. When dealing with the IRS or a state taxing agency, it is better to err on the side of caution. If you cannot substantiate the deduction, don’t claim it. Claiming deductions that you cannot substantiate will not only be cause for that deduction to possibly be disallowed, but you may incur a negligence penalty as well. Remember that deductible travel expenses have to be considered ordinary and necessary by the IRS.
For more information on tax perks for business trips, take a look at IRS Publication 463: http://www.irs.gov/pub/irs-pdf/p463.pdf This light reading on the plane may save you thousands of dollars. Enjoy the journey!