For business professionals that travel often for work, there is plenty to think about. Did I bring all of my chargers? Did I remember to pack the “good” pants? Did I download every season of “House of Cards” for the flight? With so much on your mind, it’s difficult to focus on whether or not you’re expensing your travel correctly. While this may not be the most riveting subject, it’s extremely important to understand come tax season to ensure you get the return you deserve (and become one step closer to purchasing those shoes you’ve had your eye on). Properly filing your taxes will decrease your chances of being audited by the IRS and let’s face it, no one wants to deal with that.
Understanding what can and cannot be expensed is the first step in a successful (and stress-free) tax season. Not to mention, this will be a huge help when planning future trips so you can attempt to combine business and pleasure. The next priority is making sure you efficiently keep track of all expenses so you don’t end up with a huge drawer of receipts to sort through. Don’t worry, we all have one! By managing your expenses through one central hub, it’s one less thing to worry about so you can focus on why you’re traveling in the first place!
Your company may have a travel policy that outlines what they will and will not cover, which you should check first. But if there is no clear policy, we have some tips to help. There are some expenses that may seem more obvious than others and some that fall into the ever so complicated “gray area.” Knowing what qualifies as a deductible travel expense can be quite confusing so we’ve gone ahead and compiled the ground rules, but you should always consult your tax advisor for advice tailored to your particular situation.
Below are business travel related expenses that can be deducted:
- Transportation between your home and destination (planes, trains, and automobiles)
- Fares for taxis or other types of transportation
- Shipping of baggage (sometimes less stressful than fighting to get your carry-on aboard)
- Using your own car while at your business destination (includes standard mileage rate deduction, tolls, and parking fees)
- Meals (before you order that lobster, please note the IRS only covers 50% of the bill)
- Lodging (make sure to request an itemized receipt as some expenses do not qualify – the mini bar, for example, may not be eligible. Unfortunately, some of us have found this out the hard way)
- Dry cleaning and laundry (just in case you have a freak coffee accident)
- Tips you pay for services related to any of these expenses (tipping = good karma)
- Other similar ordinary and necessary expenses related to your business travel (business calls, Wi-Fi, registration for an event, etc.)
Below are expenses that are not tax deductible:
Family Travel Expenses
Bringing your family along is sure to make your business trip more exciting, but it’s important to note that their expenses are not deductible. While you can expense the shared hotel room (great for family bonding) you will not be able to write-off their transportation or meals. If you’re not certain if something is deductible, consider if the expense would have been necessary with or without your [awesome] family there.
This one seems obvious but you must actually travel in order to write something off as a “travel expense.” For example, attending a local conference and staying overnight at a hotel would not qualify as deductible. That said, you can expense meals (if entertaining clients) and deduct the standard mileage rate if you need to travel within the local vicinity for business purposes. Bottom line: staycations will not be covered!
Conventions held outside of North America
If you’re able to prove a convention or seminar will benefit yourself and the company, you can certainly expense the travel-related costs. As long as the purpose of the convention is related to your job responsibilities and you are able to demonstrate that attending will improve your skill set, you should not have a problem deducting these expenses. However, attending an international convention is much trickier. Understandably, the IRS does not want business travelers jet-setting to Paris for vacation and writing it off as a business expense. If you do plan on attending an international convention, you must be able to prove that you would not be able to achieve the same benefit by attending a conference within North America. The IRS will check the nature of the convention to make sure the reason for being held outside of North America makes sense (i.e. many of the participants live overseas). Before you renew your passport, make sure you are able to adequately justify attending a convention held outside of North America.
Tip: Make sure you review the list of countries the IRS considers North American. You would be surprised to find some unexpected countries – shout out to Jamaica!
Like most things in life, there are always going to be gray areas. As you look to classify what is considered a legitimate travel expense, you are going to be faced with several scenarios that aren’t perfectly clear. When trying to evaluate these circumstances, you should consider this question: Is the expense ordinary, necessary and reasonable? If your expense meets this description, you’re likely going to be covered but of course, we all have different definitions of what’s reasonable. For example, I may think a $50 dinner is reasonable after #crushing my meeting whereas John Doe may think a $500 solo meal is within reason. Use your best judgment to determine what’s reasonable and just remember that an excessive night out is not worth being audited!
Now that we have a pretty good understanding of what can and cannot be expensed (baby steps, people), how can we keep track of our expenses in an efficient and effective manner? The days of hoarding and sorting through crumpled receipts are behind you, or at least they can be with the help of programs designed to consolidate and manage your expenses. There are plenty of apps available to make expensing travel easier than ever before, but these are two of my favorites:
Helps digitize your receipts and keep them organized so you can efficiently sort through them later. Perfect for all my fellow procrastinators out there:
Great tool for expense report management, receipt tracking, and business travel. Helps provide the true cost of a trip from start to finish.
Bottom line: expensing travel does not have to be intimidating and tedious. By following the guidelines above and utilizing the latest technology to help keep you organized, you can guarantee a successful tax season. Try to use your best judgment to determine what’s reasonable and necessary. Traveling for business is a great opportunity to prove yourself to the company and to your clients. It can be stressful but also very rewarding. In order to make your business trip completely worthwhile, don’t overlook the importance of deducting your travel expenses. There’s no reason you shouldn’t get the tax return you deserve!