Small Business Tip: What You Can Deduct While Traveling

As Wedding Planners, destination weddings are frequently on our schedule.  To help us with our tax deductibles, Renee Daggett from Admin Books brings us timely tax tips for summer travel.

Travel:  What is deductible?  Part 1 0f 2

by Renee Daggett

Business owners and employees often want to deduct travel expenses on their tax returns.  But, be careful.  Business travel deductions are an area the IRS will focus frequently on because many taxpayers aren’t familiar with the rules.  Figuring these deductions can be complicated.  Below are some of the top travel questions asked by taxpayers.  Consult your tax preparer for your specific situation or review IRS Publication 463.

So what business travel expenses can you deduct?

The Internal Revenue Service defines travel expenses, for tax purposes, as “the ordinary and necessary expenses of traveling away from home for your business, profession or job.”  The rules about what is considered a business travel expense are not black and white, so there is some room for interpretation.

•You may deduct 100 percent of your business travel expenses with the exception of meals and entertainment, which are only 50 percent deductible. •Traveling expenses must not be considered lavish, extravagant or unnecessary.  For example, a meal allowance of $30 per day would be considered ordinary, but eating at five-star restaurants the whole time would not. •Business assignments away from home that last longer than a year are considered indefinite by the IRS and therefore not eligible for a tax deduction. •Your travel must be for existing business.  You are not eligible for a travel expense deduction if your trip is to start a new business or acquire one.  Those items would be considered start-up expenses and are separate from travel.

How do you decide if a travel day is personal or business?

Whether a trip is primarily business or personal depends on the facts and circumstances.  The amount of time spent on personal activities compared to the amount of time spent on activities directly relating to business is an important factor in determining whether the trip is primarily business or personal.

If your trip is largely for personal reasons, but you conduct business while away, you may deduct only those expenses that are directly related to business.

You can deduct all of your travel expenses if your trip was entirely business related.  If your trip is primarily for business but also includes some personal travel, you can deduct only the travel expenses related to business.

What classifies as a business day?

Generally, a business day is at least four hours and one minute to be considered a business day.

Days spent traveling to and from a business destination are considered business days. Weekends and holidays are considered business days if they fall between business days. For example:  You travel from San Francisco to Jamaica for business meetings, beginning on Tuesday and concluding on Wednesday of the following week.  You treat Saturday and Sunday as business days, even if you spend those days at the beach.  On the other hand, if the meetings concluded on Friday and you spent the weekend on the beach, you count those days as personal, nondeductible days.

If your presence is required at a particular place for a specific and bona fide business purpose, that day is a business day, regardless of time spent on business.  For example:  You live in San Francisco but need to travel to Washington, DC, personally to sign a contract.  The contract signing takes 30 minutes.  The day is a business day.

You also have a business day if you travel to a business location with the intent to conduct business but could not conduct that business because of circumstances beyond your control.  For example:  you travel to Disney World to attend a seminar.  The seminar leader is struck ill and no seminar is held.  You go to Epcot for the day.  The day is a business day. (Your Epcot ticket is not deductible if you do not separately qualify it for an entertainment deduction, but the rest of your expenses for food and lodging qualify as business deductions because your return flight is the next day.

Here is an example of fitting in personal travel with a business trip.  You work in Atlanta and take a business trip to New Orleans.  On your way home, you stop in Mobile to visit your parents.  You spend $1,996 for the 9 days you are away from home for travel, meals, lodging and other travel expenses.  If you had not stopped in Mobile, you would have been gone only 6 days and your total cost would have been $1,696.  You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans.

Why is classifying a day as a business day important?

1. If a day is classified as a business day, then the deductions for the costs for the day (lodging, food, etc.) are deductible. 2. The business day classification counts toward the trip being primarily a business trip and producing deductions for the cost of travel to and from the destination.

Stay tuned for Part 2 next week.

Thank you for your timely tips, Renee.  The ACPWC appreciates your interest in helping wedding consultants keep on top of important tax business.

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