Often, people have uncertainties regarding what costs on a business trip are deductible, and what costs are their responsibility.
The first step in making a deduction is being honest with yourself – was the trip really for your job, or was it a vacation with a few work days tacked on just for the tax benefits? Once you’ve answered that question, it will be much easier for you to use the guidelines below and determine what is deductible and what isn’t.
Domestic transportation costs are 100% deductible if the primary reason for the trip is business, but this means that the number of business days must exceed the number of personal days on the trip. Good news! Travel days count as business days, and weekends and holidays count also – but only if they fall between days devoted to business, making it impractical to return home.
How did you travel to your destination? Travel to and from your departure airport, your airfare, baggage fees and tips, cabs to and from the destination airport, rental cars, and other similar expenses are all deductible. If you travel by train or in your personal vehicle, those expenses qualify, too.
Once you arrive at your destination, out-of-pocket expenses are fully deductible. This includes lodging, hotel tips, seminar and convention fees, and cab or rental car fare. Meals are subject to the 50% disallowance rule, which means that only half the price of a meal is deductible. Expenses for personal days are non-deductible. Bringing the family on a trip is perfectly acceptable - as long as you recognize that none of their expenses are deductible.
“Standby days” when your physical presence is required also count as business days, even if you are not called on to work. Any other day principally devoted to business activities during normal business hours also counts as a business day.
What happens if you miss a work day due to reasons beyond your control? For instance, you might have trouble with local transportation, a power failure, or even a natural disaster. These days still count as business days if you originally planned to work.
When you are on the go, it is difficult to find time to track all of these expenses accurately. Recording what you spend is critical to success because it directly impacts your bottom line. Today, there are many tools available in your phone’s app store that keeps you organized in this area. Many of our clients use apps like the ones listed below.
BizXpenseTracker Developed with small business owners and consultants in mind, this app tracks expenses and mileage; it also allows you to record your time worked. You can customize categories and sub-categories, and it generates expense reports. The templates in the app provide the information required by your accountant, and it has the capability to store photos of receipts.
Concur Mobile Designed for small businesses whose employees travel frequently, Concur allows for fast creation of detailed expense reports. Managers can track travel expenses and approve travel spending for employees, as well as book hotels and flights. The app can also link up with credit cards and import charges automatically. You can reimburse employees directly through the app.
Expensify This app enables you to keep track of business expenses, mileage, and billable time. It offers receipt capture and can be synced with your credit cards so that expenses can be pulled in automatically. You can use the saved receipts to create an expense report. It also allows for multiple expense reports that can be converted into PDF files.
Mileage Log+ Created strictly for tracking gas mileage, the app has a mileage log and IRS rates for reimbursement. It is designed with IRS compliance in mind. The app can store frequent trips, and a simple tap inputs that mileage. You can easily search for useful information. Expense reports are a breeze to share, especially by email.
Shoeboxed This expense tracking app lets you capture receipts and file them for reimbursement or as a deductible item.
Smart Receipts This open source app scans receipts via phone and generates expense reports that you can mail to yourself as PDF or CSV files. PDF reports are tabulated, making them easy to read and appropriate for sharing.
Please note that additional rules and limitations apply to foreign travel and travel to attend foreign conventions and conventions held on cruise ships.
For more information on the IRS rules of business travel, see: https://www.irs.gov/taxtopics/tc511.html
Lastly, we at DP Financial & Tax, Inc. encourage you to take one or two personal days on a business trip, if possible. Remember to stop and smell the roses! It is always beneficial to return home to work with a relaxed and refreshed mind.
Safe travels! DP Financial & Tax Staff
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