Business owners can run into considerable costs when traveling for work, but some of these expenses can provide deductions come tax time.
Travel may have been curtailed during the pandemic, but it remains necessary for many self-employed individuals across the country.
When you travel multiple times per year to meet with clients or negotiate contracts, the costs can quickly add up and begin to hinder your bottom line. Travel is about more than plane tickets and hotels; meals, ground transportation, and miscellaneous expenses add up.
The good news is that tax deductions are available for many business travel expenses, including transportation costs and meals.
Here’s a look at the things you can write-off and the documentation you’ll need to keep the IRS happy.
Deducting meal expenses
You’re going to need to eat while on the road, and, luckily, you can deduct some of these expenses.
According to the IRS, business owners can deduct 50% of their meal costs as long as they’re a legitimate business expense. If the meal is a primary part of your business function, a community event you’re sponsoring, or a charity dinner, you can often deduct 100% of the cost.
Keep in mind that you can’t deduct personal meals while on a business trip. For example, if you meet with a family member for dinner while traveling for business, you can’t write off the bill.
You must ask for a receipt for meals you plan to deduct from your taxes. While you don’t have to include this receipt with your tax return, you might need to show it if the IRS audits you later.
Transportation tax deductions
You can deduct transportation costs for business travel, no matter which method you use.
According to the IRS, you can deduct 57.5 cents per mile when driving your personal vehicle in 2020, plus add the cost of tolls and parking onto the deduction. In theory, this tax-deductible business expense should offset the cost of gas and upkeep on the vehicle when using it for work.
If you choose to take a plane, bus, or train to your destination, you can deduct your ticket’s cost from your taxes. Taxi and other transportation modes between the airport or station and your hotel and your hotel and your work location also count.
When renting a car in the city where you’re working, you can write-off the expense when using the car entirely for business. If you’re using the vehicle for personal reasons, too, only a portion of the cost is eligible.
Other deductible expenses
Other items are tax-deductible, as well, depending on the nature of your trip and what expenses you incur.
For example, you can write-off your hotel room if you’re unable to return home on the same day. Remember, however, that only essential expenses are eligible. You can’t deduct minibar charges or movie rentals. Make sure you ask for an itemized bill when checking out of your hotel room because the IRS will want to see it if they ever audit you.
There could be situations, like giving a presentation, where an equipment rental is necessary on a business trip. This expense is deductible, assuming that the rental is entirely for business reasons.
Other deductible expenses include conference fees, dry cleaning expenses, telephone and fax charges, and tips you provide to service staff while on a business trip.
Things you can’t deduct!
Before filing your taxes, be aware of specific items you can’t deduct. Failure to follow the rules could lead to an audit, which you surely want to avoid.
You can’t deduct most entertainment costs, for starters, including tickets to sporting events, country club memberships, fishing trips, and nights at a bar. Even if you’re conducting business in these settings, the activity is considered entertainment.
You also can’t deduct lodging expenses within your home city. While you can write-off meal and vehicle mileage in your home city, the IRS won’t like it if you attempt to deduct a hotel room, even if you’re attending a conference nearby.
It’s perfectly acceptable to bring your family with you on a business trip, but don’t try to deduct their travel costs. The hotel room remains a business expense because you’d need it anyway, but your family’s plane tickets and meals are considered recreational.
Although it’s a somewhat vague term, you aren’t permitted to deduct “unreasonable” expenses on your taxes. The problem is that there is no official definition for these expenses, so don’t go overboard and stick to things that you know qualify to avoid an audit.
Keep a keen eye on your tax situation
If you still aren’t sure about what you can deduct and how to claim these items on your return, working with a professional can help. This assistance ensures that you make the maximum entitled deductions without running afoul of rules that will get you audited.