A Guide to Business Travel Tax Deductions
As Tax Day approaches, the hunt is on to find additional tax relief – especially for small business owners, entrepreneurs, consultants, and people with complex tax situations. Believe it or not, travel deductions offer a way to reduce your net earnings, but they come with a lot of caveats.
Defining Business Travel
First, be mindful of what you track as a business expense. The general rule for whether an expense is deductible is that it must be ‘ordinary and necessary’ to conduct business.
A necessary expense is one that is helpful and appropriate for your business. Whether an expense is ordinary and necessary depends on facts and circumstances, which vary based on your job role and industry.
So, if you are looking to deduct a shopping excursion for new attire to wear on an important business trip… You probably want to think twice as everyday clothing does not usually qualify as ordinary and necessary.
Using the ‘ordinary and necessary’ principle can help lead tax advisors to a correct decision—or at least a reasonable one, based on the facts and your individual financial circumstances.
Items that have the potential to be business travel deductions include:
- Air travel and pre-check
- Rental car
- Shipping of baggage or trade show material
- Dry cleaning and laundry while on a business trip
- Fares for taxis, commuter bus, or transportation between:
- The airport or train station and your hotel
- The hotel and the work location
- Tips paid during your business excursion
- Business calls – fax, cell, or landline
- Using your personal car while on a business trip2
- Technology – computer rental or wireless fees
Best Practices for Business Travel
As a general rule, when traveling away from your place of business, keep records of all expenses incurred and any advances received and keep all receipts. Records should be kept in case a deduction is questioned.
Taxpayers can get confused as to whether certain travel expenses are deductible or not. As a taxpayer, your role is to properly report and track potentially deductible expenses associated with business travel for your tax advisor.
If this article has left you confused, don’t sweat it. When you use a tax advisor, you can rest assured all deductions are considered – from travel to everyday business expenses.
1: Instead of keeping records of your meal expenses and deducting the actual cost, you can generally use a standard meal allowance, which varies depending on where you travel. The deduction for business meals is generally limited to 50% of the non-reimbursed cost.
2: You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.