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Small Business Tip: Travel – What Can You Deduct While Traveling? Part 2
Continuing on from last week, Renee Daggett from Admin Books keeps us updated on important deductions we can use when traveling on business
Can I Pay Family or Friends for Business Lodging?
by Renee Daggett
Yes, deduction for business travel lodging expenses when staying with a relative or friend for less than 15 days is deductible to the business. For example, will you be taking a business travel trip to a city where your mom and dad live? If so, you could pay fair rent for staying at their home and the rent you pay mom and dad could be tax-free to them.
1.You need to pay a commercial (fair) rent to mom and dad.
2.You need to get a receipt; tax law requires receipts for all lodging tax deductions.
3.Your mom and dad collect the rent as tax-free income because they rented their home for less than 15 days during the tax year.
4.If you pay rent of more than $600 to an individual during a tax year, you must give them (and the IRS) a Form 1099.
5. Mom and dad get no deductions for the expenses of renting their guest room to you. Under the less-than-15-day rule, tax law completely ignores both income and expenses. Mom and dad report the rental income from the Form 1099 on their Schedule E for the year, then, because the amount is not taxable, they should subtract that amount in the expense section of Schedule E and add a supporting statement: “Taxpayers rented their personal residence for less than 15 days during the tax year. Such rent is exempt from tax under IRS Section 280A.”
Can I deduct travel for my spouse?
Travel expenses can be deducted for a spouse (or person accompanying the taxpayer) if:
1. The individual is an employee of the taxpayer
2. Has a bona fide (genuine) purpose in traveling with the taxpayer
You can still take your spouse on the trip even if they are not an employee, but the expenses related to their travel are NOT deductible.
How can I deduct international travel?
All expenses for travel outside the U.S. are deductible if the trip is entirely devoted to business activities. If the reason for the trip is primarily for non-business reasons, such as a vacation, NONE of the travel costs are deductible. If the primary purpose of the trip is for business, but some time is spent on personal activities, travel costs generally must be prorated by dividing the number of business days by the total number of travel days. But, even if time is spent on non-business activities, the trip is considered entirely for business if one of the following conditions is met:
1. The taxpayer does not have substantial control over arranging the trip. A self-employed person generally has substantial control over the arrangement of a trip.
2. The taxpayer was outside the U.S. on a business trip for a week or less. Do not count the day of departure from the U.S., but count the day of return.
3. Less than 25% of the total time spent during the trip was spent on non-business activities. For this purpose, count both the days of departure and return.
4. The taxpayer can establish that a vacation was not a major consideration for the trip.
Cruise Ship Conventions
You can deduct up to $2000 per person per year if you take a cruise and there is a business convention held. The seminar must be directly related to the taxpayers trade or business and the ship must be a US ship and all the ports traveled are within the U.S.
If the expenses listed on your receipt show for meals or entertainment, the deduction is only 50%. However, if the expenses are not stated separately, the cost is 100% deductible.
Actual costs Versus Per Diem
In some situations, it is more advantageous to take advantage of using the IRS’ per diem rates for your travel expenses. These are IRS published rates for meals, travel and lodging by area (See IRS Publication 1542). For example, if you find that you don’t spend much on meals, the per diem rate might get you a higher deduction per day than taking actual costs. If you file your tax return as a proprietor or as a corporation in which you own more than 10 percent, you may not use the per diem allowance for lodging, actual receipts are required.
Needed Proof of Travel
In every case, it’s important to remember to always keep your receipts so that you are able to justify an expense should you ever get audited. Taxpayers are required to maintain a diary, log trip sheet or similar records, as well as documentary evidence (for example, receipts, canceled checks) to substantiate the amount, time, place and business purpose of the expenditures. For travel and entertainment expenses (other than lodging), receipts are not required for expenses below $75. However, your credibility increases if you have all documentation of your trip. It is also important to keep books, brochures, or handouts for conferences attended. Records must be kept showing the time, place, business purposes and amount of each separate expenses.
As you can see, travel deductions can be confusing. If you have a specific travel situation you would like to discuss, call Admin Books for assistance.
Thank you, Renee for sharing your timely expertise.
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