Advice for enterprising speakers
Why it Pays to Plan Ahead
What do you mean my
business trip isn’t
deductible? Here are
the plane tickets to
Barcelona, and the
business card with the meeting date
noted on the back.”
Your plea falls upon deaf ears.
“Your support doesn’t meet the
guidelines,” your CPA states bluntly.
With a bit of pre-planning and familiarity with basic IRS rules regarding
travel during vacation season and year
’round, you can ensure your trip deductions. It all starts with this general rule:
“To be deductible, the expense must
be for a business purpose. The travel
expenses incurred by a taxpayer while
away from home must be ordinary and
necessary in the pursuit of, or execution
of, his trade or business.”
Typical Deductible Expenses
Deductible transportation expenses
include: air, rail and bus fares; taxi and
other transportation between airport,
hotel and client or prospective client, or
from one place of business to another;
transportation from lodging to temporary workplace; baggage charges and
transportation costs for samples and
display materials; business automobile
expenses; and associated tips.
Other deductible expenses include:
meals, lodging and associated tips while
away from home; telephone, fax and
overnight delivery fees; laundry, cleaning and pressing of clothing; and a public stenographer.
Receipts for expenditures over
$75 are requisite for deductibility.
Expenditures under $75 only need
to be supported by an expense
report; a receipt is not required
(except for lodging).
Mixing Business with Pleasure
When there’s an opportunity for a little
self-indulgence while on the business
trip, it’s important to know the rules
for domestic versus foreign travel.
Domestic travel must be primarily for
the taxpayer’s business. If the taxpayer
decides to stay an extra day or two, the
business portion of the trip is deductible, including the cost to and from the
destination and any business-related
expenses at the business destination.
A spouse’s travel expenses are deductible if he/she is a “bona fide employee”
of the one paying or reimbursing the
expenses and has a “bona fide business
purpose.” The spouse is automatically
considered an employee if he/she is an
officer of the corporation or entity.
Outside the United States, travel
expenses must satisfy more stringent
requirements to be deductible. Travel
abroad must be prorated between business and pleasure, with the allocation based on time spent on business
pursuits versus personal enjoyment.
According to a safe-harbor rule, “If the
trip was primarily for business, no allocation is required if one of the following
conditions is satisfied: 1) The trip isn’t
longer than one week. 2) Personal days
account for less than 25 percent of the
total time away from home.
A business day is any part of the day
the taxpayer’s presence is required at
a particular place for
a business purpose.
Standby days (a weekend
or a holiday) are deduct-
ible, if handled correctly.
The taxpayer could
have made his Barcelona
trip deductible while
increasing the num-
ber of business days.
He should have con-
tacted the Director of the Chamber of
Commerce of Barcelona in advance
via phone and email to schedule a
business meeting on Friday to discuss
the possibilities of doing some work
for the chamber, and then holding a
second meeting on Monday to present
a formal proposal.
By staggering the meetings, the
“standby days” (Saturday and Sunday)
are deductible. After the trip, the taxpayer should have sent a thank-you letter to the chamber director to recap the
meeting itinerary. This letter is proof
of a business reason to meet on both
Friday and Monday.
Whether you’re spending a week out
of state or abroad, it’s necessary to plan
for a tax-deductible business trip. You
might even get a few vacation days out
of the deal.
Francis Bologna, CPA, has
counseled business owners for
over 35 years and is an expert
in financial and tax planning.
He was one of the founding
partners of a CPA firm in 1980. Francis has
authored numerous articles on profit improvement and benchmarking performance. He can
be contacted at firstname.lastname@example.org.