Business travel deductions are some of the most common deductions taken by small business owners, but they’re also the most misunderstood.
Many of the expenses incurred while traveling for business count as tax write-offs, but there are two important distinctions to keep in mind:
- Figuring out whether you’re really traveling, at least according to the IRS.
- Determining which travel expenses can be written off, and how much can be written off (i.e. not every expense is 100% deductible).
Are you traveling?
You may have a heck of a commute to work every day, even traveling out of state to get to your place of business. You may also frequently travel to different job sites, or spend a few days per week at a different location.
However, none of the above necessarily means you can deduct expenses under the business travel umbrella.
The IRS is chiefly concerned with the location of your business home base. Let’s say you live in Orange County, but you work in West Hollywood. (What are you, crazy?)
With such a tough commute, you’ll probably have to stay in West Hollywood during the week, and return home to the OC on weekends. According to the IRS, neither the time spent in WeHo or the OC is time spent “traveling.” Since your tax home is in West Hollywood, the money you spend on hotel rooms and eating out is not considered a business travel deduction because you are, at least according to Uncle Sam, already “home.”
You aren’t officially traveling until you’re required to stay overnight away from your business home. The overnight stay has to be necessary, too – you can’t take a meeting an hour away from the office then decide to stay in a hotel just because you don’t feel like driving back (well, you can – you just can’t write it off.)
Basically business travel deductions can only be applied to “regular” business travel; the kind where you get on a plane (or drive really far), stay in a hotel, and engage in some sort of business activity.
Is it a write-off?
Once you’ve determined that you’re officially traveling for business, it’s time to go nuts, track every penny you spend, and write off every dime. Right?
Unfortunately, not all business travel write offs are created equal.
Here is a basic breakdown of expenses that can be written off while traveling for business, and the percentage of each item that can be deducted:
- Hotel rooms and lodging: You can deduct up to 100% of the cost of your accommodations while traveling for business. Might as well spring for the 5-star hotel, as long as it’s within a reasonable distance of your business location.
- Airfare and transportation: If you’re paying with points or frequent flyer miles, you cannot deduct the cost of airfare. If you’re paying out of pocket, airfare is usually 100% deductible. Rental cars, cab fare, tolls, shuttle rides, gas and/or mileage is all deductible as well – just be sure to scan your receipts using the Shoeboxed app (a free download for iOS and Android!) on your smartphone to track these easy-to-forget expenses.
- Meals and entertainment: Your meals are usually only 50% deductible. Entertainment may be 50% deductible as well if you can prove it’s related to business. For example, if you’re at a conference in Vegas and you treat yourself to a Cirque du Soleil show, that’s probably not going to fly. If, however, you’re treating a group of investors to a Cirque du Soleil show, Uncle Sam will be more inclined to approve the deduction.
- Tips: Be sure to keep track of every tip you give, because they’re 100% deductible while traveling for business. An easy way to do this is to edit the receipt on which you tipped within your Shoeboxed account. When you upload your receipt from the hotel, for instance, you can add a note indicating how much you tipped the bellhop, the maid, etc.
- Dry cleaning: There’s no need to spend money on dry cleaning at home when Uncle Sam will foot the bill while you’re traveling. Feel free to have your clothes sent out and take the deduction (within reason, however – lugging your entire wardrobe to a two-day conference in Tucson might look suspicious).
- Internet and office expenses: Any expenses incurred while using the hotel’s business center, like sending faxes, scanning, printing, or using the Internet, can all be deducted up to 100%. If you need to buy office supplies or pay to use WiFi within the conference center, those things are deductible too.
What questions do you have about business travel deductions? Let us know in the comments!