Take advantage of these deductible business expenses to make the most of your business travels.
9 Deductible Business Expenses That Will Help You Save Lots of Money
Knowing When There Are Deductible Business Expenses
Generally, the Internal Revenue Services (IRS) allows you to deduct expenses for business-related trips. However, first, it is important to understand what the IRS considers to be “travel for work.”
Before anything else, you have to be “traveling away from home.” This means that for you to perform your duties well, you have to temporarily be away from your tax home longer than a day’s work.
The IRS defines your tax home to be your regular place of business. This includes the city council or the area where your main job or business is, regardless of where your family home may be.
For people with multiple jobs, the frequency of the person in that job and his income from it determines where his tax home is. On the other hand, the tax home of people with no regular jobs is their family home. The IRS considers those with neither as itinerants and is not eligible to claim travel expense deductions.
Second, it should have enough time for you to get the rest needed to perform your duties. It does not necessarily mean that you have to spend an entire day away from your tax home. It may be that there is a span of time within that particular shift that will require you to sleep or rest to continue with your duties.
The IRS then defines deductible business expenses to be “ordinary and necessary” expenses in your trade or business. Ordinary expenses are expenses that are “common and accepted in your trade.” These are expenses that other companies in the same line of business would probably have as well. Necessary means that it is “helpful and appropriate for your business.” These, on the other hand, are expenses that your business needs for it to operate. The IRS’s Publication 463 provides a complete list of business expenses that are deductible.
If you are sure that you are “traveling away from home,” then here are some deductible business expenses you might enjoy:
1. Transportation to the Business Destination from Your Tax Home and Vice Versa
Traveling either by car, bus, train or plane from your tax home to your business destination is at the top of the list of deductible business expenses.
Just make sure that the primary purpose of the trip is business. To qualify, you have to spend a majority of the days on the trip for work.
Such is the case for those who extend their stay in a place for vacation. For example, a man originally slated to travel for work for 3 days decided to extend his stay. As long as he extends for up to an additional two days only, then his transportation is still covered.
However, if a trip is primarily for personal reasons, then the cost of the entire trip becomes non-deductible even if you insert business meetings in between. A trip becomes for personal reasons if you spent the majority of the days on those reasons. You may, however, still deduct expenses made on days spent for business.
That is why it is important to keep either a travel logbook, notebook or diary as a record. It should detail the amount spent, the time, the place, and the reason for a particular appointment or trip. This makes sure that you have proof in case the IRS flags you for a tax audit.
Tip: Schedule all your business appointments prior to the trip and space them out evenly. Traveling to the destination counts as a business day already, so perhaps it’s best to set an appointment a day after. Weekends sandwiched between two business days also count. If you schedule things properly, you can turn your business trip into a vacation trip at the same time. You can also save yourself the cost of transportation to the place.
2. Local Transportation Fares
The IRS also considers fares for all types of transportation as deductible business expenses. However, these have limitations as they cover only fares for transportation that you take between the following:
- The airport or station and your hotel
- The hotel and your temporary work location or the location of your business appointment
- One business-related destination and another business-related destination
The IRS considers fares for travel to places you go to on your downtime as non-deductible business expenses.
Tip: Try to schedule business meetings or appointments with clients in the destinations you might want to visit. If you want to visit a particular museum, for example, why not set an appointment with a client at the coffee shop beside it? That way, you do not have to incur additional non-deductible business expenses for the travel to the museum.
3. Baggage and Shipping
Sending baggage you may need to bring to and from your temporary work location is also a deductible business expense.
It does not necessarily have to be work-related like props or materials you will need for a presentation, for example. It may include your personal baggage.
4. Use of Personal Car / Renting a Car
Operating and maintaining your car is another deductible business expense.
The easiest method you can use is to compute by the standard mileage rate of 54.5 cents per business-related mile driven.
You may also deduct based on the actual cost of the car’s operation and maintenance. This includes expenses for gas, oil, lubrication, washing, repairs, tires and supplies. However, you will have to prove that the expenses were relevant to the business trip. If your personal car originally had broken-down tires, you cannot have it fixed and deducted as a business expense later on.
Another deductible business expense is renting a car. Just like in the use of the personal car, the IRS allows you to deduct only the portion used for business purposes.
Deductions under this category would also include parking and toll fees.
All expenses made for lodging are completely deductible business expenses. While there is no set limit on the amount that you can deduct for lodging, there are some rules for it to be deductible:
- The individual must be traveling away from his tax home to serve as an employee.
- His stay in the place must be necessary for him to attend an appointment, conference, or other business-related events.
- The site selected must not be lavish.
- Your employer must require that you travel.
Meals are also deductible business expenses, though they have a 50% limit on them.
While the IRS has not set specific guidelines for the number of people in a meal, they generally have to be able to prove that it was business-related. This means the people who attended were conducting business-related discussions or transactions. Simply having lunch with a client but not having any business-related activities makes the meal non-deductible.
Similar to the use of cars, you can also deduct your meals as a business expense based on the standard meal allowance method. This gives you a steady daily amount for your meals and other incidental expenses instead of computing for the actual cost.
You can also compute for the actual cost of the meals. Keep in mind that lavish or extravagant meals are generally nondeductible.
Whichever method you prefer to use, you can generally only deduct half of the unreimbursed cost of your meals.
The cost of laundry and dry-cleaning of clothes, as well as the cost of shining shoes worn on the trip, are also deductible business expenses.
Just make sure that your employer does not reimburse these costs. You also have to have all the receipts for the cost of the cleaning. Should you decide to stay longer for pleasure or personal time, only the cost of cleaning the clothes used for business are deductible.
The IRS also says that the cost of all communication used for business is deductible. This includes the cost of using fax machines or renting computers and any other communication devices.
Again, just make sure that the use of those devices is for business purposes and not for personal reasons. And as with everything, make sure to keep a receipt of it all. If you are using your personal phone, get a copy of your phone bill and deduct the amount used for business calls.
The tips given to the hotel staff, ship staff or baggage carriers are also considered deductible business expenses. The IRS calls these tips “incidental expenses.”
For those who do not want to compute for the actual cost, there is the incidental-expenses-only method. This gives you a steady deductible amount of $5 per day. Just remember that you cannot use this method on top of the standard meal allowance method as that method already includes incidental expenses.
Taxes have a general reputation for being too complicated to understand. Because of this, a lot of people do not bother learning about tax deductions. However, if you take the time to read and master them one at a time, it will save you a lot of money. In this case, you can even make a boring business trip fun if you know how to make the most of it.
Did we miss any deductible business expenses? Tell us in the comments section below!
Up Next: 7 Tax Penalties To Avoid In 2018