Before you start calculating taxes for your year’s business travel expenses, there are several things you should consider. Here’s a few things we feel are important.
1. To be deductible, your travel expenses must qualify as ordinary and necessary… well this sounds a bit vague, doesn’t it? What it means is: these expenses must occur during a business trip away from home, the purposes of the expenses need to be purely business-oriented, and the amount claimed should be “expectable” (ie: close to industry benchmarks).
2. Next, what is a tax home? According to the IRS, your tax home is “your regular place of business or post of duty”. It may or may not be different from your place of residence. So when you are filing your business travel expenses, make sure you mean expenses which occur while travelling away from your tax home, not where you live. If you have a few places like that, you have to pick the one where you spent the most time, where the “degree of business activity” was higher, and where your financial return was bigger.
3. What you can deduct. The main groups of deductible business travel expenses are:
– Transportation: airline, train, or bus tickets, as well as travelling by car (rentals or your own vehicle), taxis, shuttles, etc. Make sure to include any transportation between airport, bus, or train terminal and your hotel, travel between your hotel and your workplace (exhibition hall, partner office, etc.), travel between customers, and the anything else of this sort.
– Meals and Entertainment: usually deductible up to 50%.
– Lodging: hotels of different types and categories, rented apartments and rooms.
– Other expenses.
4. And there are some things to be careful with. In certain cases, you need to consult the IRS for exceptions on things like business travels outside the USA, National Guard or military reserve expenses, per diem rates for different locations, and many other situations. Don’t forget that your Miscellaneous expenses can not exceed 2% of your adjusted gross income.
Now, since you’ve been so adamant about filing things properly, here’s a little bonus – a few expenses you might not know you can deduct: laundry and dry cleaning, shipping work materials, gifts up to $25, gratuity, even airport limousines.
Filing taxes is one of the most important business events of the year. It is crucial to know the basics and it pays to know the smallest details. Here we’ve provided you with some general information for deductible business travel expenses. For more details, you can consult the IRS Publication on Travel, Entertainment, Gift and Car Expenses.
Happy travels and happy taxes!