When business takes you on the road, you can take advantage of various and sundry business expense deductions for everything from rental cars to dry cleaning and tips. Unfortunately, too many entrepreneurs are unfamiliar with the rather detailed and numerous rules the IRS has for what qualifies as a legitimate business expense. Saving as many receipts as you can is a good place to start, but knowing which ones to avoid claiming in the first place will save you a real headache in the event of an audit.
Before outlining what counts as a deductible expense, it is useful to know that business travel has its own definition: you must be outside the town or city where your business is located at least overnight and for a period of at least one day’s work. While plenty of business travelers occasionally bring family members along on such trips, only your expenses as an employee are deductible. Additionally, any non business-related side excursions must be omitted from your business expenses.
So what can I deduct?
Airfare, bus, and train tickets are fully deductible, as is taxi or other transportation fare, which takes you to or from the airport or venues where business is taking place. Car travel counts and so do any business-related parking fees. A rental car, however, is only deductible for business-related usage.
This is fairly straightforward. Just make sure to save your receipts – many of them are sent via email these days, making it that much easier to organize your records.
Meal Costs and Entertainment
You can deduct 50% of the unreimbursed amount of your meals or use a standard meal allowance guideline. The meal counts if it is part of business entertainment (covered further below) or as long as you are not being ‘lavish or extravagant.’ Unfortunately, the guidelines are vague as to exactly what constitutes lavish or extravagant, but here it’s best to use common sense. In fact, you won’t be disallowed from a deduction just because of an establishment’s ritzy reputation, but it’s probably best not to overdo it on the $100 bottles of wine.
Entertainment deductions are only allowable if they are directly related to the conduct of your business. Keep all receipts – even something as seemingly unimportant as a receipt from Starbucks can prove time and location should you need to explain yourself in an audit. Note amounts, dates, times, and the names of the people entertained.
Any business-related phone calls, fax, or other communications taking place during the trip are deductible.
Laundry, Dry Cleaning and Tips
Even smaller expenses incurred during a business trip can be written off. Just make sure you save your receipts and keep meticulous records. The IRS doesn’t expressly require receipts for anything over $75, but it’s still a good idea to hang onto the smaller slips. You never know when you might need to retrace your steps.
This is merely a rough outline, but it covers all the basics. For more detailed information, the IRS has a rather long but readable resource for business owners trying to plan a business trip at www.irs.gov. When in doubt, always consult a tax professional.