Travel Expenses: What You Need to Know

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Tips help small business owners determine which travel expenses are deductible according to federal tax guidelines

 

As an individual always looking for new destinations and something new to write about while looking for new business, my least favorite thing to do is my expense reports.

However, this chore is a fact of our life every year. The following is a summary of helpful tips concerning business travel expenses.

What are Travel Expenses?
Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession or job. Generally, employees deduct these expenses using Form 2106 or Form 2106-EZ and on Form 1040, Schedule A. You cannot deduct expenses that are lavish, extravagant or that are for personal purposes (all available on the IRS Topic 511 – Business Travel Expenses).

Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home.

You can deduct ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances. (To access the following “tables,” simply click when prompted, more info is available on Small Business notes–travel expenses.)

Table 1 (from Small Business Notes) summarizes travel expenses you may be able to deduct. You may have other deductible travel expenses that aren’t covered there, depending on the facts and your circumstances.

When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. You can use a log, diary, notebook or any other written record to keep track of your expenses. The types of expenses you need to record, along with supporting documentation, are described in Table 4 (see Chapter 5).

If you have one expense that includes the costs of meals, entertainment and other services (e.g., lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. You must have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes one or more meals in its room charge.

Guest Expenses
Should a family member or friend accompany you on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. However, you can deduct the travel expenses of someone who goes with you if it is your employee or the individual has a business purpose for the travel event.

If traveling with a business associate who meets the conditions above, you can deduct the travel expenses for that person. A business associate is someone with whom you could reasonably expect to actively conduct business. A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner or professional advisor.

A business purpose exists if you can prove a real business need for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible.
For Example: Sam drives to Chicago on business and takes his wife, Joan, with him. Joan is not Sam's employee. Joan occasionally types notes, performs similar services, and accompanies Sam to luncheons and dinners. The performance of these services doesn’t establish that her presence on the trip is necessary for Sam to conduct business. Her expenses are not deductible. Sam pays $115 a day for a double room. A single room costs $90 a day. He can deduct the total cost of driving his car to and from Chicago, but only $90 a day for his hotel room. If he uses public transportation, he can deduct only his fare.

Travel expenses for conventions are deductible if you can show that your attendance benefits your trade or business. Special rules apply to conventions held outside the North American area.

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About the author

Noel Carroll

Noel M. Carroll, Founder of The Carroll Group, a consultant for high-end Luxury Hotels, Resorts, and Destinations TCG-The Carroll Hotels offering marketing solutions: strategic sales, marketing, and public relation services. Adding to her extensive hospitality and travel background, TCG also provides an opportunity to assist meeting planners from the MICE market segments with site selection and hotel negotiation for their future meetings & events worldwide, which strongly supports the knowledge & expertise gained from being on the supplier side of the travel industry. Throughout her career she has assisted clients on all levels with their travel arrangements, while being involved in the development, expansion, and management of hospitality operations for numerous hotels worldwide, international sales offices, and cruise lines.

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