MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
ASK THE RIGHT QUESTIONS TO CLAIM BUSINESS TRAVEL DEDUCTIONS
(January 27, 2006) — Despite e-mail, faxes, teleconferencing and videoconferencing, there are times when business travel is essential to your business. Such travel can be expensive, but you can offset the costs with a little help from Uncle Sam. To understand the rules governing business travel deductions, the Virginia Society of CPAs suggests you ask yourself the following questions.
What is the reason for my travel away from home?
If you answered “primarily for business,” there’s a good chance you may deduct those travel expenses that are ordinary and necessary. Deductible travel expenses include the cost of air, train or bus fare between your home and business destination, as well as the cost of local transportation once you arrive there. You may also deduct 100 percent of lodging, telephone, dry cleaning and other expenses related to conducting business, and 50 percent of the cost of your meals.
How long will my business require me to be away from home?
Your travel expenses are deductible when your business trip is long enough or far enough away that you can’t reasonably be expected to complete the round trip without sleep or rest.
Are my travel expenses related to an existing business?
To be deductible, your travel must be for an existing business. Travel expenses you incur in acquiring or starting a new business are not deductible. These expenses must be added to your start-up costs and you may elect to deduct up to $5,000. The remainder of the start-up expenses is allowed as a deduction ratably over a 180-month period.
Are my travel expenses lavish or extravagant?
A negative answer to this question earns you a deduction. According to the IRS, your travel expenses must be reasonable considering the circumstances. Generally speaking, the IRS won’t deny your expenses simply because you chose to fly first class or stay at a luxury hotel.
Is the primary purpose of my trip business or pleasure?
If you decide to add a few vacation days to your business trip, you may still be able to deduct your travel expenses and the business portion of your lodging and meals, provided you can demonstrate that business was the principal reason for the trip. An important factor in determining if your trip is primarily business or pleasure is the amount of time you spend on each.
If your trip is primarily for personal reasons, you cannot deduct any travel costs, even if you conduct some business at your destination. You can, however, write off business expenses you incur at your destination. For example, suppose you and your family fly to New York City for vacation, and while you are there, you take a customer to dinner to discuss a business deal. You can deduct the cost of the taxi fare between your hotel and the restaurant, and you can write off 50 percent of the meal, but you cannot deduct your airfare.
Is my spouse an employee of the business?
This question only applies if you take your spouse along on a business trip. The expenses of a spouse are not deductible unless he or she is an employee of the business. In addition, to qualify for a deduction, the spouse’s travel must be for a bona fide business purpose, and the expenses must be otherwise deductible by the spouse. Even if expenses related to your spouse are not deductible, you may claim a deduction for lodging based on the single-rate cost of similar accommodations for you, not half the double rate.
Do I have good records to support my deduction?
You need receipts to substantiate your travel and lodging costs. For each expense, you should record the date, amount, place, business purpose and business relationship. For incidental expenses and for meals, you need a receipt only for expenses of $75 or more.
What if I need more information?
The rules governing deducting business expenses are complex. If you have any questions or need advice, consult with a CPA.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
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