Did you know that 85% of business owners carry out personal activities during business trips?
While you may think this is a perk of owning a business, mixing business and pleasure can cause you to be audited. Writing off your trips as business expenses isn’t always allowed. The consequences of not separating the two can be quite severe.
To avoid running afoul of the IRS, you need to know the rules. Thankfully, they have set them out so you know what to do. You’re about to find out the four business travel expenses you can write off and four that you can’t.
1. Travel and Transportation
In general, the costs associated with traveling to a place where you will do business are covered. The IRS says this can cover the cost of a flight, train, or bus to the destination. Once you get there, it also includes taxi costs and the price of getting around to meetings, etc.
Take note that if you’re given the ticket for free your cost is zero. If a client, for example, provides you with transport, you can’t claim it.
Also, say you decide to go sightseeing at your destination. The taxi to get there cannot be a business travel tax deduction.
2. Business Travel Expenses for Accommodation
Hotel and other types of accommodation are deductible travel expenses. When you check out, get an itemized bill for your stay. Remember, documentation is important for the IRS.
If you’ve rented a movie or raided the minibar, those expenses don’t count as deductible. However, you may have used the laundry or dry cleaning to press your suit. Those expenses will be covered.
To find better business lodging, you can also look at apartments. These are sometimes cheaper than hotels. However, they won’t have many of the business services that hotels do.
3. Meals and Food
Your meals while away from home on business are definitely covered. If you don’t want to keep track of actual expenses, you can use the IRS’ per diem rates.
These are daily travel expenses IRS originally set for federal employees traveling away from home. They are also used for private employers.
Note that the rate for the continental United States and outside of the US is different. This is one of the travel considerations you’ll have when going abroad on business.
It can be hard to find the best restaurants near you when you’re traveling. Especially if you’ve spent your whole day working. If you’re in the UK, you can use this guide.
4. Other Business-Related Expenses
It’s impossible for the tax people to cover every single possible expense. For everything else, you’re allowed to claim it if it’s related to your business.
Some common expenses include the cost of renting equipment. This could be something like renting a projector to present at a meeting. If it’s necessary to register for an event, that fee is deductible.
Calls and other business communications like faxes on your trip are included too. Finally, any tips you pay connected to these services are also covered. This can be things like tipping the bellboy for carrying luggage at your hotel.
5. Expenses in Your Home City
Now, what expenses are not considered valid travel deductions?
Remember that business travel is a defined concept. Your business trip is only a trip if it’s away from your tax home. You must sleep outside of your hometown.
It also has to be longer than a day’s work. So a trip to a neighborhood in your city to work onsite for a few hours doesn’t count.
Longer trips are also not business travel. So any travel lasting longer than a year is not a business trip.
6. Spouse Expenses
Can I bring my spouse on a business trip? It’s a common question, and the answer is, you can. However, don’t expect your company to pay for it.
Yes, if they share your hotel room you can still deduct for accommodation costs. You would have needed a hotel anyway. Still, you cannot deduct their expenses.
This includes the cost of their travel, such as flights. Their meals are also a no-no. If you decide to dine together, separate bills are a good idea.
There are other considerations that you need to take into account. It’s often inappropriate to bring your spouse to business meals. Since you’ll be working, will you even have time to spend with them?
If your spouse is happy being left on their own during the day, it could work. In the evenings, a romantic dinner can be nice, but you won’t be able to expense it. So while it can be fun to bring your wife or husband along, prepare to pay for the privilege.
7. Expenses for Personal Trips
While this may seem obvious, many people think doing some business on a personal trip is fine for tax purposes. Bad news: the IRS is on the lookout for people doing this.
The purpose of your trip must be primarily business related. Otherwise, it’s a nondeductible personal trip. If you’re having difficulty, look at the amount of time spent on business versus personal activity.
8. Unreasonable Expenses
For gray areas, ask yourself if the expense is truly related to your business. If it’s not, it’s likely that it’s not claimable.
There’s no way to predict what the IRS will find strange. However, you can avoid an audit by toeing the line and not trying to cut corners on your taxes.
All About Travel Deductions
If you ever question whether something can be deducted, hopefully, this guide to business travel expenses helps.
It’s also important to keep track by keeping copies of your documentation. Download an expense tracking app if you find it difficult. You can also scan receipts to a cloud storage facility.
Looking to learn more about what you can and can’t claim? Read our article on tax deductions small businesses can claim on their tax returns.