Business trips is one of the most frequent deductions claimed by small businesses. Unfortunately it can also be a “red flag” to the IRS. Many small business owners mistakenly think that every business trips expense paid is deductible. With a little preparation and some documentation, most business trips can be expensed. This guide will help you ethically maximize your deduction.
Preparation plays a key role in ensuring the business trips expenses are deductible. In determining where you plan on staying, where you plan to eat or even where exactly you are traveling it is important to make sure the choices are reasonable and not “extravagant” according to the IRS. The IRS fails to define extravagant which can frustrate the business traveller.
Business Trips Expensed
Airfare is deductible if the majority of the time spent on the trip is for business purposes. This means the business trips does not have to be 100% for business. For example, if you are on a trip for five days, at least three days must be for business. If the majority of the trip is for personal reasons the meals and other expenses may still be deductible, just not the airfare (or train or bus fare). The IRS did make a concession for budget minded travellers. If you stay at a destination over the weekend because it is cheaper to fly home during the week, the weekend days can be considered business days.
Of course, if you drive you are allowed to take the IRS standard mileage rate regardless of who else is in the vehicle.
If your business trips is more than 50% business related the hotel is deductible. If you are travelling alone it is 100% deductible. If your family is with you can only claim a deduction for the single occupancy rate published for that room. Meals will typically only be 50% deductible, even if for business purposes. It is important to document all attendants at the meal. This is as simple as writing the names on the back of the receipt. Again, the meal or entertainment must be reasonable….no caviar at every meal. Unless your spouse is participating materially in the meeting, their portion is not deductible either. One exception is if you are entertaining a client and his or her spouse, the portion related to your spouse is also deductible.
Other deductible business trips expenses include taxi fare, local bus fare, subway fees, parking rates and other expenses incidental to the trip. As with any expense, keep the receipt and note the purpose of the receipt, if necessary. Using an envelope of some other organizer is a sensible way to collect the receipts accumulated over the course of a trip.