Disclaimer: Information contained below was accurate as of the date of publication. Due to frequent tax law changes, information may no longer be accurate. For the latest tax information, please contact a member CPA.

Deducting Travel Expenses

by Andrew D. Schwartz, CPA

Labor Day not only marks the end of the summer, but it also signifies the end of vacation season for many people.  Hopefully, you took some time off this summer and went on a great trip.  Upon returning from your trip, there is one more thing to do besides looking at the pictures and watching the videos.  You need to figure out whether you can deduct the cost of your vacation on your tax return.

Here are some of the specific rules for deducting your travel expenses:

Travel Within the U.S.

When traveling within the U.S., the trip must be primarily for business to be fully deductible.  By meeting this threshold, you get to deduct all of your travel and lodging expenses, as well as 50% of the cost of your meals and entertainment, incurred while away from home.  Non-business activities and side trips are never deductible.

What if your travel was primarily for personal reasons?  You can still deduct the money spent on travel, lodging, and meals and entertainment incurred in connection with any business related activities. So if you met with a colleague to discuss business or had a job interview during your vacation, make sure to deduct that day's hotel and restaurant bills.

Travel Outside the U.S.

The threshold for international travel is much higher.  To be deductible, your trip must be entirely devoted to your business activities.  Fortunately, there are a few loopholes which makes it easier to deduct your foreign travel.  If the trip was for a week or less, or you spent at least three-quarters of the time working, that's good enough in the eyes of the IRS. 

Here's another hint.  When traveling abroad, make sure to work the day after arriving and the day prior to departing.  By doing so, your travel days count as business days. 

Travel With Family Members or Friends:

When traveling with other people, the money spent on your companion's travel generally isn't deductible  As a matter of fact, you're required to limit the deduction for your hotel room to the single rate charged by the hotel. 

To make your companion's travel deductible, that person needs to be an employee of your company.  There also must be a business purpose for the companion traveling with you.

Conventions:

For conventions in North America, you can deduct travel and lodging expenses, and 50% of the cost of meals and entertainment, incurred while attending a convention that benefits your business or profession.  The cost of attending investment, political, and other types of conventions generally isn't deductible.

Did you attend a convention outside of North America?  If so, you can only deduct the travel costs incurred if the meeting is directly related to your profession or business. Plus, there must also be a reasonable expectation that a similar meeting could have been held within North America.  Who comes up with this stuff?

Saturday Night Stay:

If you extend your trip to stay over a Saturday night to qualify for reduced air fare, the costs associated with that extra day are deductible, even if the business portion of your trip has ended.  Evidently, cheaper fares qualify as a legitimate business reason for spending an extra day away from home.

Keep Good Records

Whether you maintain your checkbook on Quicken or Microsoft Money, use a separate credit card just for business related expenditures, or diligently file away your receipts in a separate folder, finding a record keeping system that works for you makes it easier to figure out your deductions at tax time.

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Deducting Meals & Entertainment

by Andrew D. Schwartz, CPA

When determining whether you can deduct your meals and entertainment, you need to segregate your receipts into two buckets.  One bucket is for dinners and events you attended around where you live.  The other is for money spent on  meals and entertainment while traveling on business.

Local Meals & Entertainment

I once had a client who was a physician engaged to another physician, who wanted to deduct every dinner he and his fiancé ate out together since they are both doctors.  Unfortunately, there needs to be a little more of a business purpose when dining locally for the cost of the meal to be deductible.

If you're ever audited, here is what the IRS would like to see in connection with local meals and entertainment that you deducted:

1. How much money you spent

2. The time, date and place of the meal or event

3. The specific business purpose of the meeting

4. Who else was with you at the dinner or event

It's a good idea to jot down this information either on the back of the receipt or in your PDI.  And don't forget that your meals and entertainment are only 50% deductible.

While Traveling

Whenever you're on a business trip, 50% of your meals and business related entertainment is deductible.  You have two ways you can calculate your deduction. 

One option is to keep track of the actual money spent during your trip.  The easiest way to do this is by keeping all the receipts together, or by charging everything on one credit card.  At the end of the trip, simply tally up what you spent.

The other option is to base your deduction on the per-diem rates.  The IRS actually assigns one of six rates to every metropolitan area in the country.  Currently, the rates are $30, $34, $38, $42, $46, and $50.  A listing of the per diem rates by city can be found at www.policyworks.gov/perdiem. To calculate your deduction using the per diem rates, simply multiply the number of days you were in a city by that city's rate.  It couldn't be easier, and it relieves you of the burden on keeping track of your individual meals and entertainment receipts.

Which method should you choose?  For each trip, you get to decide whether you'll base your meals and entertainment deduction on the per diem rates or actual expenses.

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