Business Travel Tax Tips for the Self Employed
Business travel is a deductible expense. Everyone knows that, right? So, you keep your credit card receipts for your airfare, lodging, meals and other travel-related expenses and everything should be fine when it comes to filing your taxes. Well, not necessarily. Fast forward three years and drain out the color. You’re sitting in front of an IRS auditor who is scanning your credit card statement and asking, “A trip to Maui? How do I know this is for business? Looks more like a personal expense to me. Disallowed!” You are now frazzled, trying to rack your brain and trying to figure out whether that trip was the one for the trade show, conference or what.
The auditor wants proof of business intent. After all, you cannot take the family to Maui, stop at a potential new customer to drop off a brochure and a business card and call it a business trip. About the only thing you will be able to deduct in that instance is the cab ride over to the potential client’s place. Even then, you should have some documentation, like a “nice meeting you” e-mail, proving you did what you claim.
Taking your family or your friends along is not a deductible expense. You used to be able to write off your spouse’s travel expenses, but no more. Even if you insist that you needed your spouse to arrange meetings, take notes, or perform other business activities, it won’t fly. The spouse must be a bona fide part of the business, either your legitimate business partner or your employee and his or her presence must be imperative to the purpose of the trip.
If your trip is for both business and pleasure, you can generally deduct your costs of getting to and from your destination. Then you must allocate your expenses between business and personal. For example, you go to New Orleans on a five-day trip for a trade show during Mardi Gras week. Three days are spent at the trade show, and two are spent collecting beads and hangovers on the streets. You may deduct your roundtrip air fare or other transportation to and from New Orleans, your lodging for three nights, 50% of your meals for three days, and all other expenses incurred during the three-day trade show that are business related. Your expenses incurred during the subsequent two days are personal and not deductible. Even if you spent those extra two days with some business associates and/or potential clients, it’s still not deductible because a Mardi Gras atmosphere is not conducive to a substantial business discussion. And that, my friend, is a requisite for writing off meals and entertainment expenses.
Aside from the obvious - transportation, lodging, and meals - you can write off a number of other expenses:
- Tips
- Dry cleaning and laundry
- Taxis, buses, limos, commuter shuttles
- Baggage and shipping
- Computer rental
- Public stenographer’s fees
- Telephone, fax, internet access fees
- All other similar ordinary and necessary expenses
A trip outside of the U.S. will be considered entirely for business – provided the intent is business – if you are outside the U.S. for a week or less or you spend less than 25% of your time on personal activities or vacation was not a major consideration.
But when it comes to cruises, the rules are a little different. I will cover that and the use of per diem rates rather than actual expenses to take the deductions in next week’s column.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know,” available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.