What to deduct when you’re on the go (and how to keep track of it all)
Keeping track of travel expenses and deductions can be so confusing that you may find yourself tempted to throw in the proverbial tax towel and forget the whole thing.
But for small business owners, the write-offs you take while traveling can make the difference between owing money and getting a refund at the end of the year.
Our Ultimate Guide to Travel Expenses will teach you:
What counts as a deduction and what doesn’t
The portion of each expense that can be deducted (Newsflash: it’s not always 100%!)
How to keep track of it all and still enjoy your trip
Can I write this off?
Expenses vs. deductions
If you are going to create an expense report, submit it to your boss or partner, and be reimbursed for that expense on your next paycheck, the expense is not a deduction. It may very well end up being a deduction for the company come tax time, but since you’re not truly paying anything out of pocket, you can’t claim it as a write-off.
If, however, you are a small business owner and are paying out of pocket travel expenses for your hotel room, rental car and airfare, those expenses definitely qualify as deductions.
Local vs. out of town travel
Knowing the difference between local travel and out of town travel will help you determine how to calculate your travel expenses and write-offs.
The IRS considers travel expenses to be completely separate from the day-to-day costs incurred while running your business.
The van you bought for deliveries, the mileage accrued making said deliveries, parking fees and tolls are all considered transportation costs, even if you have to travel hundreds of miles on any given day.
So how does the IRS determine whether a write off is a transportation deduction or a travel deduction?
Easy. They want to know if you’re spending the night.
Out of town travel means that you’re far enough from home that an overnight stay in a hotel is a necessary business expense (and no, shacking up at your hometown’s nearest 5-star resort just because you feel like it does not count as a travel write-off).
Once that airfare is booked and a few nights at the Best Western San Diego seem imminent, you can begin tracking your expenses as travel deductions. The Shoeboxed Receipt and Mileage Tracker makes it easy to track receipts to write-off or deduct later, and it even allows you to track your mileage!
Business vs. personal
If you’re off to a conference or event in a snazzy city like Paris or Puerto Vallarta, you may be inclined to bring your significant other, spouse or family along for the ride.
Generally speaking, unless your posse is also employed by your company, none of their travel expenses will be deductible.
Let’s say you’re going to Paris for a four-day conference and you’re bringing your husband. The plan is to attend the conference for the first four days, then gallivant around Western Europe for another 10 days.
Your airfare is deductible, but his is not.
Your hotel room is deductible, but only while you are attending the conference. The remaining 10 days are considered a personal vacation and you’re on your own.
50% of the cost of your meals and entertainment is deductible, but only during the conference. If you and your husband go to dinner during the business portion of your trip, half of your meal (or 25% of the bill) can be taken as a deduction. The same rules apply if you bring additional family or children.
While your hearts may be joined, your travel expenses are not. Track your deductions exactly as you would if you were traveling alone, and make sure to keep personal vacation expenses completely separate from business expenses.
Can I write all of this off?
Just because something is a write-off doesn’t mean it’s 100% deductible. Confusing?
Think of the IRS like an airline who’s forced to put you up for the night when your flight is delayed. Sure, they’ll offer you a decent hotel room and transportation to and from the airport. But what’s up with that $15 food voucher? What are you supposed to buy with that, a Snickers bar and a bottle of water?
The IRS wants you to be well-rested, but they don’t really feel like footing the entire bill for dinner at a 5-star restaurant.
In general, you may be able to deduct up to 100% of the following business expenses while traveling:
The cost of your airfare is up to 100% tax deductible. If you decide to take a train or a bus, that counts too. Uncle Sam will even pay for those pesky baggage fees, but see below before trying to write off those pre-flight cocktails.
Yes, you can fly first class, but be ready to prove that doing so is “regular and necessary” for your business. Extremely lavish expenses tend to raise red flags.
If you fall victim to one of the many airports or hotels that still doesn’t offer free WiFi, fret not. That 24-hour Boingo Internet pass is a deductible travel expense, as is anything you spend in the hotel business center. If you find yourself racking up printing, faxing and copying costs while traveling, those are also 100% deductible.
Once you arrive in Phoenix (or Vegas, or Tahoe), you’ll probably have to leave the airport. Your rental car, cab fare and/or public transportation costs are all 100% deductible. The same goes for any extra expenses you accrue while driving the rental car like gas and tolls.
Make sure to ask for a receipt when taking a cab!
In most cases, the cost of your accommodations are 100% deductible. If it makes sense, you can certainly choose a 4 or 5-star hotel if you don’t mind fronting the initial extra cost. Just make sure your choice falls within the realm of “regular and necessary” – the IRS doesn’t accept deductions that it deems “lavish or extravagant.”
Since one person’s “lavish” is another person’s “meh,” you have some wiggle room here. If the 5-star hotel is 30 miles from your work site and you’re not only staying there, but taking a personal helicopter to and from your digs, and you’re not Bill Gates, you might want to tone it down a notch.
You tip the bell hop, you tip the valet driver, you pick up your dry cleaning and before you know it, your hotel expenses are starting to creep up towards the total cost of the room itself.
Happily, anything that costs you money while you’re in the hotel is deductible, as long as it’s regular and necessary for a typical person in your line of work.
Tip: Since it might be a little awkward to ask the bell hop for a receipt after tipping him, just make a clear note of how much you spent on the top of a related receipt from the same day.
Meals and entertainment
50% alert! 50% alert!
When calculating travel expenses from meals and entertainment, you have moved away from 100% Write-Off World, and into the Land of Half Off.
A whole lotta eating goes on while you’re traveling, and Uncle Sam understands that it’s not particularly practical to live on microwavable pizza pockets from the hotel vending machine for a week.
You can deduct up to 50% of your meals while traveling, whether you eat alone or with business associates. Be careful when calculating dinner write-offs, however. If you happen to be staying in the home town of your old college buddy, dinner with him or her is not a deduction.
Other forms of entertainment are only deductible if you can demonstrate how they are necessary for the growth of your business. Jot down the names of potential clients and business associates on the back of your receipts before scanning them to your Shoeboxed account.
If you want to write off your tickets to Wicked, go ahead – as long as you actually work in the entertainment industry, that is.
Keeping track of it all
Phew! With all of those travel expenses to keep track of, you may want to simply throw in the towel and take the standard deduction for meals and other travel write offs.
But wait! Being your own mobile bookkeeper while traveling is a breeze thanks to receipt scanning apps and portable receipt scanners.
Shoeboxed Receipt and Mileage Tracker
Our handy app (available for iOS and Android) lets you keep track of every travel expense in the blink of an eye. Just snap a picture of each receipt and let us do the rest! Shoeboxed uploads each receipt to your account, digitizes the data for editing, and lets you recycle that paper scrap before it can begin collecting dust in your carry on.
What if you acquire an exorbitant amount of receipts while traveling, or you have a ton of paper that needs to be digitized while you’re on the go?
The Fujitsu ScanSnap scans stacks of paper receipts and large documents in a snap! With its USB port and ability to create editable Word and Excel files, your long distance work site will feel like a home office offshoot. At just 12 ounces and 34 inches long, you’ll be able to slide the ScanSnap into your carry on and focus on what really matters – finishing that final Words with Friends move before the flight attendant makes you turn off your phone.
Now that you’re a travel expense expert, get out there are start tracking those write-offs already!
photo credits: businesstravelalmanac.com, www.blogto.com