If you travel for business, you'll want to ensure that the expenses you incur while
doing so are tax deductible. IRS rules are strict, and improperly substantiated
deductions can cost you.
Away from home rule
Generally, ordinary and necessary expenses of traveling away from home for work are
deductible. For the expenses to qualify, you must be away from your tax home - your
regular place of business - substantially longer than an ordinary day's work and need
to sleep or rest to meet the work demands while away.
You don't necessarily have to stay away from home overnight to satisfy the rest
requirement. If you travel for business purposes throughout the day but return home
that night to sleep, you may still be considered "away from home" for tax purposes.
In this case, expenses you incur for such trips are still deductible.
Also, the trip must be primarily for business purposes. If your trip involves both
business and personal activities, a portion of the travel expenses may be
nondeductible personal expenses.
Deductible travel expenses
Most airfare, taxis, rental cars, lodging, meals (with exceptions), tips and business
phone calls are tax deductible. But you can't write off "lavish or extravagant"
travel expenses, so be prepared to prove that your patronage of a high-end restaurant
or five-star hotel was reasonable under the circumstances.
Generally, only 50% of business-related meal and entertainment expenses are
deductible. If your employer reimburses you under an accountable plan (see below),
the 50% limit applies to your employer rather than you.
You must substantiate deductions for lodging - and for other travel expenses greater
than $75 - with adequate records. These include credit card receipts, canceled checks
or bills. Records should indicate the amount, date, place, essential character of the
expense and business purpose.
If your employer reimburses your travel expenses, an accountable plan enables the
company to deduct the reimbursements, but the reimbursements aren't included in your
income as salary and aren't subject to FICA and other payroll tax obligations.
Although you may still be able to deduct some or all business travel expenses without
an accountable plan, such deductions are available only if you itemize and your
expenses and other miscellaneous deductions exceed 2% of your adjusted gross income.
For reimbursed expenses to qualify under an accountable plan, you must have paid or
incurred them while on company business and reported the expenses to your employer
within a reasonable time (usually within 60 days). You also must return any excess
reimbursements - usually within 120 days after they were paid or incurred.
Generally, to be reimbursable on a tax-free basis, your travel must meet the "away
from home" rule discussed earlier. However, your employer can reimburse local lodging
expenses if the lodging is temporary and necessary for you to participate in or be
available for a bona fide business meeting or function. The expenses involved must be
otherwise deductible by you as a business expense (or be expenses that would
otherwise be deductible if you paid them).
As with most IRS rules, there are exceptions to which travel expenses you can deduct.
If you're unsure about some expenses, give us a call.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2016