When Can Business Owners Deduct Travel Expenses? by Angie Adames, CPA
Posted on June 29, 2021
by
Angie Adames
There is a very fine line between business and pleasure when it comes to how the IRS treats business-travel expenses, including airfare, meals and lodging. In general, some or all of these costs may be deductible only when they are deemed reasonable, necessary and directly attributed to the taxpayer’s active conduct of a trade or business. As simple as this may sound, taxpayers must be careful to recognize specific rules (and exclusions to these rules) for recording these expenses, demonstrating proof of business purpose and calculating the allowable amount of a deduction.
Qualifying Expenses
Self-employed taxpayers who leave their homes or the primary location where they work for a minimum of one night may qualify to deduct 100 percent of necessary business travel expenses, provided those costs are “attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee.” In addition, covered expenses, which include the following items, may not be consider “lavish or extravagant”:
- Air, rail and bus fares;
- Baggage fees and/or shipping costs;
- Lodging;
- Taxi, ride-sharing and other transportation costs between an airport and a hotel, from one customer to another, or from one place of business to another;
- Cost of using a car for business purposes at a business destination;
- Meals (100 percent of the costs in 2021 or 2022 and limited to 50 percent of the cost for tax years 2018, 2019 and 2020);
- Dry cleaning and laundry expenses; and
- Tips on eligible expenses.
It is important to note the IRS is intentionally vague in its definition of expenses that are ordinary and necessary in carrying on any trade or business. Instead, the agency relies on case law and the facts and circumstances of each individual taxpayer to determine eligibility for a deduction.
Mixing Business with Pleasure
The rules for deducting business expenses become even more complicated when taxpayers mix business travel with pleasure. For example, if a taxpayer extends a business trip by a few days for personal enjoyment, he or she may not deduct the costs for sightseeing or enjoying the city on those additional dates. Similarly, when a spouse joins a taxpayer on a business trip, expenses incurred on behalf of the spouse are not deductible unless the taxpayer can demonstrate that the spouse’s presence and performance of any services have a legitimate business purpose.
Record Keeping
To demonstrate that expenses are ordinary, necessary and related to a business benefit, taxpayers should keep receipts for all business-related expenses and include the following details to support a business-expense deduction:
- Dates of services
- Names and addresses of service providers
- Name of the person(s) being entertained
- Nature of the business relationship
- Business purpose or benefit gained or expected from the service.
To substantiate these expenses for business purposes, taxpayers may keep logs of their activities and receipts, canceled checks or credit card bills or they may make use of a long list of mobile apps or software solutions that make the record-keeping process easier.
The ability for taxpayers to deduct business expenses can be both rewarding and complex. The advisors and accountants with Berkowitz Pollack Brant have extensive experience working with professionals and business owners to understand and maximize a broad range of tax-savings opportunities available to them.
About the Author: Angie Adames, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she provides tax and business consulting services to real estate companies, manufacturers and closely-held entities. She can be reached at the firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.
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