For many of you, it’s probably been a while since you last traveled for business.
Does that next looming trip fill you with excitement to finally travel again? Or does it bring with it the dread of not knowing what you can and cannot expense?
We know that there’s nothing particularly exciting about expenses, but there is no reason they should hold you back from bringing your best self and approaching your trip with the confidence you would on any other day.
Keep on reading to learn our little trick for remembering what your deductibles are, but first, we’re going to need to lay out some groundwork.
Let’s talk expenses
The first consideration is defining your tax home because this will determine how your costs are categorized. It effectively is the distinction between your work and home, and how the activities that you need to perform around work and home can be assessed.
What is your tax home?
Your tax home is where your business is based. This is the entire city or general area where your main place of business or work is located. If you work remotely, it will apply to the office address for which you perform services. This may be regional or a head office, depending on your company structure.
You live in Oaklahoma and work in Dallas. You only come back to Oaklahoma for the weekends and stay in a hotel during the week, dining in restaurants for breakfast, lunch, and dinner.
Dallas is your tax home so you cannot deduct any of your meals, travel, or lodging expenses Monday through Friday.
On the weekends, you travel back to your family home in Oaklahoma. Unfortunately, that too cannot be deducted because it is not traveling for work.
If you have a temporary work assignment away from home, you can deduct the travel expenses.
But, you can’t if it is indefinite – more than one year.
Now for the fun part. It’s time for your expectations to come into play!
If you expect you will work for a location for more than a year, you cannot deduct travel expenses, regardless of how long you are actually there.
If you expect to work from a location for less than a year, then yes, you can deduct travel expenses.
But, if the “expectation” changes and you know you will be there longer, you can’t.
If you’re traveling for a convention and can show that your attendance is benefiting your trade or business, deduct away!
Our trick to remembering the deductibles
When you are traveling for business, your company or employer is relying on you to represent them and their values the best way possible. During this trip, you are a hugely important asset to them, so it’s nice to think that you are taken care of throughout.
What you need is a little TLC. That is Tender Loving Care.
But you’re extra special so you get it all twice!
TLC x 2 is how you’re going to remember what you can and cannot include as an expense.
T: Travel and Tips
Travel expenses include any journey made by airplane, train, bus, or car between your home and your business destination. If your company or client provides a pre-paid ticket or you obtain free travel by a frequent travel (or similar) program, your travel costs count as zero.
Aside from yourself, another important part of the trip could be your need to display specific material that needs to be shipped separately, or even just additional baggage. This is included too.
Tips you pay for services relating to any of the categories covered here are also deductible!
L: Living and Laundry
Under living, we are going to include your lodging costs and non-entertainment-related meals. Business meals are usually expensed at 50% so this will be something worth checking with your company.
In addition, other similar ‘ordinary’ and ‘necessary’ expenses related to your business travel are included. It could be transport to and from a business meal, public stenographer fees, computer rental fees, and operating and maintaining a house trailer.
Dry cleaning and laundry are also included as deductible expenses. Like we said before, you want to bring your best self to these trips! And fortunately, as far as expenses go, this will allow you to do so.
C: Connections and Comms
As well as the primary travel method, travel connections are also included as a deductible expense. That can be from the airport or train station to your hotel. Likewise from your hotel to the client’s work location, meeting place, or your temporary work location.
Your travel connections also include the use of your car at a business destination. You can choose to deduct actual expenses or the standard mileage rate, as well as tolls and parking fees accrued for work engagements. If you are renting a car, you can only deduct the business-use portion of the expenses.
Business calls and communication by any device, including a fax machine (just in case), are included.
What not to do
Different companies can vary in the specific nuances regarding deductibles, so if you’re ever in doubt, ALWAYS check first before making any frivolous purchases.
The most important thing to remember is to steer clear of the lavish and extravagant!
While there is going to be some grace granted here, keep in mind what is reasonable. This doesn’t necessarily mean you will be hunted down by the IRS for flying first-class or dining in a nice restaurant, but perhaps avoid the chauffeur-driven limo and VIP cocktail lounges.
And finally, if it’s personal, it’s not business.
Enjoy your trip!
In short, travel expenses are costs associated with traveling to conduct business-related activities. Within this, only ordinary and necessary travel expenses are deductible.
If you remember TLC x 2, you can hit the road (or the air) safe in the knowledge that all of your vital expenses are covered. You can keep your mind and attention 100% focused on making the best impression and fulfilling your goals.
Now you have no reason to not look forward to your next business trip!
If you’re still not sure about what expenses you can deduct or you just want to be certain your business is staying compliant with tax laws, don’t hesitate to contact Lloyd & Hodge today.