Are you perplexed by the 13-page IRS guidelines for deducting travel and entertainment expenses? Here I hope to guide you on how to find deductions and hopefully avoid getting audited by the IRS
How to avoid missing out on deductions
Specific rules about which entertainment and travel expenses are tax deductible can make complying with the tax code seem like trying to swim upstream during a thunderstorm. However these expenses are some of the most expenses for small business and can sometimes mean the difference on whether or not a business can continue to operate the way it is and still make a profit. If you are not careful it is extremely easy to miss out on getting deductions for legitimate expenses. The following will explain how to avoid missing out on deductions in the future.
Business Travel Expenses
If your business requires that you are away from home long enough to stay overnight, you are eligible for tax deductions related to this travel. Assuming that you were away from your tax home long enough to stay overnight, you are allowed to deduct the following travel expenses (note that some rules for international travel are different):
- Planes, Trains, and automobiles: You don’t necessarily have to choose the cheapest and most uncomfortable option in order to deduct transportation however need to choose an options that is appropriate and makes sense for the task at hand. Flying first class is generally permissible, but you won’t get away with trying to deduct a 3-day cruise you took en route to a meeting.
- Meals: Fifty percent of the costs of meals while traveling are deductible. This includes tips and tax. Taking a client out to dinner is also deductible but it required that you document what business was discussed at the meal in order for the audit to pass.
As an alternative to documenting the exact cost of meals, the IRS offers the option to deduct a set amount for meals per day. At the end of 2009, the standard meal deduction for most cities in the United States was $46 per day. This isn’t an option for travel outside of the continental United States.
- Lodging: This is the same as meals. You are allowed to deduct 50% of whatever you paid if you took a trip required you to stay overnight.
For all things business related that involve attending an entertainment event is 50% deductible except for the following examples:
Dues to civic organizations like the chamber of commerce or a professional organization.
- You are allowed to deduct the cost of spouses’ meals only if there is a clear business purpose to do so. For instance, if you invite a customer who is visiting from out of town to dinner and it would be impractical not to invite his or her spouse, you can deduct the cost for the spouses’ meal as well.
- Only the face value can be deducted. Service charges and fees are not deductible. If you purchase a luxury box for multiple events, only the cost of a non-luxury ticket per person can be deducted.
Hopefully this helps you stay on top of your taxes and get the deductibles you deserve!