Travel expenses are the most common deductions small business owners make, and they have the most rules attached to them. It can be quite confusing--especially when it comes to defining personal vs. business expenses. You work long hours, and so you like to take your spouse and kids with you when you travel for business. What exactly can you write off? The "ordinary and necessary" rule applies here as well. Is it an ordinary and necessary expense for business?
Here's some definitions and a checklist of 9 things you can write off as a business owner when it comes to travel expenses:
How the IRS Defines Travel:
You are traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day's work, and you need to get sleep or rest to meet the demands of your work while away.
You can start thinking travel deductions when you have to leave your tax home for more than one day, and probably have to sleep in a hotel somewhere and buy yourself something to eat at least.
Keep in mind that the IRS will only allow you to deduct temporary travel assignments (less than one year). Whereas, travel assignments that are indefinite (over one year) are NOT deductible.
Wait. What's a "tax home?" Glad you asked.
Tax Home Defined
Your tax home is generally the city and surrounding suburbs where you work and conduct business. However, it is more and more common for people to work during the week in one place, and then fly/travel home on the weekends. So where is a tax home in these cases?
Let's say you work Monday - Friday in Seattle, but your family lives in Spokane where you fly home every weekend to be with them. Can you write off the expenses incurred traveling to and from Seattle? Can you write off your Seattle hotel expenses or apartment rent in the city? NOPE.
Why? Because Seattle is your tax home: it's where you do business. It's also an "indefinite" work assignment. You'll be working there until...you're no longer working there.
What if you worked and lived in Spokane, and you had to fly to Seattle for 6 days for a convention that related to your business? Can you write off those expenses? Absolutely. Why? It's a temporary assignment, and you'll be there for more than one day.
9 Travel Expenses You Can Deduct For Business Tax Preparation
Bringing Along Your Spouse/Family?
Going to San Diego for a convention? Want to bring your spouse and maybe your kids along so they can spend some time on the beach--and maybe you can join them there? Sure. Go ahead, but here's what you need to be aware of:
- You can't write off any expenses incurred by your spouse or kids--unless your spouse helps out directly with business interactions (Example: If your spouse is needed to help set up your tradeshow booth, and you buy her lunch while you're at the convention center all day you can deduct 50% of her meal expense for that lunch. However, when she's at the beach the following day relaxing while you work you cannot write off 50% of her meals for her beach day).
- Their plane, train, or bus tickets are not deductable.
- You can only expense the cost of lodging as if you were traveling by yourself.
- Really, only YOUR expenses that are ordinary and necessary to your business are deductible.
Extending Your Trip For Personal Travel
It is quite common for people to spend an extra day or two in a new place to see the sites and maybe wind down from a busy week selling, networking and workshopping. If it's your first time traveling to New York City or Chicago it would be difficult to just hop back on a plane without seeing museums, plays, or eating all that food you've heard so much about, right? Go ahead and take some time to enjoy yourself, but you'll want to keep these things in mind:
- Make sure the days you're there for business are greater than the number of days you're there for personal reasons.
- Meals, lodgings, and all other expenses you incur on those "personal" days are not deductible.
- You need to be a diligent record-keeper and separate your business and personal receipts.
Speaking of keeping records...
What Kind of Travel Records to Keep
- Receipts (airfare, lodgings, meals, etc)
- Notes on who you went to meals with, and what was discussed as related to business.
- Emails from people you had appointments with.
- Emails from any conventions or workshops you attended.
- Make sure to sign in to conventions, conferences and workshops.
Still confused about what you can write off for business travel expenses?
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