Now that the world is traveling again, here is exactly what you need to know about business travel deductions for tax compliance.
First, let’s define ‘business travel’ for purposes of tax compliance. You are an employee or business owner who needs to leave your main place of work (including your home if you work from home) and incur expenses for that travel. According to the IRS, business travel is when you are away for longer than an ‘ordinary day’s work’ and you ‘need to sleep to meet the demands of your work while away.’ In plain English, it’s ok to get a hotel room.
Here’s the kicker…again, according to the IRS, ‘travel expenses must be ordinary and necessary.’ So, that $5,000 per night Airbnb mansion may be considered extravagant. The point is to keep it reasonable.
How does it work when you travel to events or business meetings?
Essentially, if your attendance benefits the business, the associated expenses are deductible. Here are some examples of deductible travel expenses:
- Travel by airplane, bus, train, or car to your business destination
- Taxi, Uber, Lyft fares from the airport (or train/bus station) to your event location, hotel, or other work location.
- Shipping of materials
- Baggage fees
- Using a personally owned car to travel for business
- Lodging and meals
- Dry cleaning and laundry services
- Business calls and communication
- Tips for services related to any of these expenses
If you are an employee and get reimbursed for business travel expenses from your employer, you cannot deduct those expenses.
What if you are a business owner or a farmer?
Entrepreneurs who have sole proprietorships or LLCs can still deduct travel expenses on your Schedule C. Farmers will deduct business travel expenses on Schedule F.
Also, if you are traveling for the National Guard or military reserves and you have unreimbursed travel expenses that you incurred during your performance of duty, you can deduct them.
Keep good records
Maintaining and organizing your receipts and all supporting documents for these expenses is extremely important in order to prepare an accurate tax return. Remember that if you are claiming mileage for business travel, you must also keep a travel log in order to claim that mileage.
There are tools that can help you keep your business travel expense and mileage records organized. It can be as simple as a spreadsheet, or being diligent about recording everything in your accounting software. Accounting softwares, like QuickBooks Online, typically have an app that allows you to easily track your miles on each trip.
Questions about tax compliance services? We’re here to help. Most people don’t just want to do business. They want to build something. We help entrepreneurs make the transition from the hamster wheel to building a business. Our clients achieve greatness they didn’t know how to tap into on their own.