Summer Travel Deductions: Fun-Fun-Fun Until the Tax Man Takes the T-Bird Away
What better way to spend a summer day than cruising the boulevard in a convertible, listening to The Beach Boys? We all know that the IRS won’t let you deduct personal expenses. But if you’re traveling on business and would like to combine some business with pleasure when possible, here’s some things to keep in mind when deducting business travel expenses.
When planning your travels, keep in mind that in order to be deductible, a business expense must be an “ordinary and necessary” expense incurred while carrying on your trade or business. This includes travel expenses. The IRS will look at whether the expense is common and accepted in your field, as well as helpful and appropriate for your business.
It pays to plan in advance and structure spending in the most tax-favorable way. If a purported deduction is later disallowed, the consequences, including penalties and interest, could well outweigh any “benefits.” On the other hand, taking maximum advantage of all legitimate deductions can greatly benefit your business, by keeping your taxable income lower while spending money to make money.
Travel expenses are the ordinary and necessary expenses of traveling away from home for business. The IRS considers you to be “traveling away from home” if:
- Your duties require you to be away from your “tax home” 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 from home.
Your tax home is generally the entire area or vicinity of your principal place of business (for example, a city and surrounding suburbs), regardless of where your family or personal home is located.
The costs of meals and lodging on overnight trips is generally deductible. They may also be deductible if the trip is long enough that you need to stop for sleep or rest.
Most of the time, only 50 percent (not 100 percent) of meal expenses are deductible.
Other deductible travel expenses include:
- Baggage and shipping
- Taxi, commuter bus and limousine
- Costs of operating and maintaining a vehicle
If travel is both business and personal, expenses are deductible only if the trip is primarily related to business. In that case, business-related travel expenses are deductible. The IRS looks at the facts and circumstances of each situation in determining the primary purpose of a trip and which travel expenses are deductible.
If you deduct travel expenses, you must be able to prove, or substantiate, the expenses.
Don’t fall into the trap of trying to deduct personal expenses as business expense. Make sure that your deductions, for example those for business use of a car or for meals and entertainment, are deductible business expenses (not personal expenses) if your plan to deduct them.
If you are audited, you will likely have to show that the expenses you claimed were in fact paid. In the audit situation, good recordkeeping can make all the difference in successfully supporting your claimed deductions.