What better way to make your trip more delightful than getting the opportunity to deduct travel expenses. It will yield fruitful results from your business trip and help you save money at the same time. However, it is important to understand the process of deducting the travel expense accurately.
If you can understand the process of deducting travel expenses, you can leverage it to save yourself from any problems with the IRS. So, here is a guide that you can follow to ensure you identify things that qualify travel expense.
The Travel Needs to fall under Business Trip
If you plan on going to Jamaica for vacation, it won’t count as a business trip. There are a few things that you need to understand before you write off your travel expenses. Therefore, below are a few ways to make sure your trip falls under business purposes.
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Leave your Tax Home
The most important thing you need to do is leave your tax home. It is the area where your business is located. Therefore, if you want it to fall under that category you must leave your tax home for almost a day to do business in another place.
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Consists Business Meetings
If you plan a business trip for 5 days out of which you spend 3 meetings with clients and 2 on the beach, it will fall under a business trip. However, if it is vice versa, it will be counted as a vacation.
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Must be an “Ordinary and Necessary” Expense
The trip should have all the expenditures that are ‘ordinary’ as per the industry standards, and ‘necessary’ for the business needs for the IRS to deem it as a travel expense.
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Plan it in Advance
To count your trip as a business expense, you must have a proper plan before you go. It is better to email it to someone to time-stamp it.
Rules for Business Travel
Another important thing to keep in mind is that you will have to spend 25% of your time abroad conducting business meetings to count it as a business trip. If you are planning an 8-day trip and conducting a meeting for 2 days, you can subtract the whole expenditure of the airfare as a business expense.
However, if you only spend a single day on the meetings and the rest on traveling, you will only be able to detect the amount of that time as a travel expense.
List of Trip Expenditures You Can Deduct
You might make so many expenditures throughout your trip, however, you cannot claim all of them as business expenses and detect them. Below is a list of a few examples which can count as business travel deductions for you to claim:
- 50% of meals when going to and from your destination
- 50% of suitable business meals
- All of the tickets, such as plane, train or the bus that you have used from your home to the business location
- Expenditures for the laundry and the dry cleaning services throughout your trip
- Rent cars or vehicles necessary for the business activities
- The expense of your stay at the hotel
- The fees of pay for your bag or luggage
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What Happens if you Cross a Line?
It can be extremely risky if you try to dodge the IRS and try to deduct your business expenses without proper paperwork. The IRS has a strict policy when it comes to deducting business expenses for the sake of reducing income taxes. Here is what you can happen if you break the rules
Penalties
The IRS will penalize you if you claim a deduction for expenses that do not qualify for a business expense. The IRS has a clear policy regarding the penalties that you will incur if you don’t have the proper documentation to back your business expenses.
Additionally, it can prompt up more investigations as the IRS will start to look around your businesses and previous claims for travel expenses. It can land you in a whole world of trouble where you will have to go through a lot of difficulties.
Therefore, the ideal thing to do is to understand all the laws, regulations, and expenses that you can deduct. Any wrongdoings by your side will impact your business in the long and the short run as it will alert the IRS.
Deduct Travel Expenses in the Right Way
Taxes and deaths are two things that are unavoidable. It is why you need to be careful when you deduct travel expenses as it can land you into many problems if you don’t do it in the right way.
You must have a bookkeeping process to keep an eye on all the processes, before deducting your business processes. Most importantly, you should consult a tax lawyer or a professional, if you are not sure how to claim travel expenses.
