Going on a business trip? Visiting a potential vendor, customer or wholesaler? Confused about what business travel expenses you can and can’t deduct? Here’s what you need to know about what you can and can’t deduct as well as some tips, tools and mobile apps for managing your expense documentation.
What Constitutes Business Travel?
You can deduct most of your business travel expenses on your tax return; however, there are some limitations and considerations that the IRS sets on what constitutes business travel.
According to the IRS, “travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.” However, for these expenses to be deductible, you must be away from your tax home (the town where your business is located) for a period longer than one day’s work, and you must be away overnight.
What Can You Deduct?
You might be surprised at how extensive this list is, but do remember that you have to be able to demonstrate that all these expenses are directly related to your business.
Deductible expenses associated with business travel away from home include:
- Air, Train or Bus Tickets – If they get you from home to your business destination. If you are using points or frequent flyer miles to get a free ticket, you can’t deduct the cost.
- Car travel – Both from your home to your destination and any use while you are there. You can also deduct business-related tolls and parking. If you rent a car, you can deduct only the business-use portion of the expenses.
- Transportation – To and from venues and to and from the airport
- 50 percent of Meal Costs – You can either track the actual costs of your meals or use the standard meal allowance. The IRS has more specifics on travel-related meal deductions here.
- 50 percent of Business Entertainment Costs – These must be directly related to, or associated with, the conduct of your business. Record keeping is essential. You will need to keep a history of the business purpose, the amount of each expense, the date and place of the entertainment, and the business relationship of the persons entertained.
- Dry Cleaning and Laundry Costs
- Business-related Calls – Including fax or other communications device
- Tips – Any tips your pay related to any of the above.
There are some limits to what you can deduct. For example, if you travel with a spouse or person other than an employee then you can’t deduct their expenses. There are also some restrictions on overseas travel deductions, cruise ship travel and attending conventions.
Keep Good Records
Be sure to document everything associated with your business expenses – the IRS requires it. Keep receipts and maintain a centralized spreadsheet of all your trips, individual line items, dates and the reason for your travel/meals/entertainment, etc. Learn more from the IRS about recordkeeping and how to prove your expenses.
Electronic Tools that Can Help
There are many online programs and apps that can help small business owners quickly and easily document business expenses on-the-go. Examples include Tax Tracker, Expensify, Mobile Receipt, Shoeboxed(all for the iPhone) and Receipt Filer Lite (for Droid users).
How to Report Your Expenses
- For sole proprietors and single-member LLCs, show these expenses in the "Expenses" section of Schedule C
- For partnerships and multiple-member LLCs, show these expenses in the "Deductions" section of Form 1065
- For corporations, show these expenses in the "Deductions" section of Form 1120.
Always Consult a Tax Professional
This article is just a snapshot of what you can and can’t deduct and some of the do’s and don’ts involved. For more information specific to your business, always consult a knowledgeable tax professional.
- SBA Guide to Small Business Expenses and Tax Deductions
- Business Entertainment Expenses (IRS.gov)
- 7 Tips to Well-Managed Business Travel that Can Enhance Your Bottom Line
- How to Choose a Tax Professional for Your Small Business
- 3 Tips to Make Selecting Tax Software Not Taxing
- When Avoiding a Tax Audit the Best Offense is a Good Defense