The travel expenses deduction
With countries and states gradually removing travel restrictions and reopening food and lodging venues, business owners are starting to travel for their business again. If you are a business owner, one way to keep your taxes low is to take all the tax deductions you are entitled to by the Internal Revenue Service (IRS) for your activity. Below are my tips to maximize your travel deductions while staying compliant with the tax rules!
What is a business trip?
As a general rule, only expenses incurred for your business are tax deductible. Expenses incurred for personal travels are not. The travels that will earn you “business miles” include:
1. Travels to customers, vendors, business locations.
2. Travels between offices : for example, travels from your main office to a secondary office.
3. Travels for administrative tasks: for example, travels to the bank, to the office supply store or to the post office. Don’t forget to include those as they can add up quickly!
4. Travel to the airport: for example, travels to and from the airport for a business trip
Commuting trips: they are not deductible
You cannot deduct expenses for travels from your home to your main office: the first trip from your home and the last trip back to your home are commuting trips and are not deductible. For example, parking fees incurred when visiting a customer are deductible - while parking fees incurred at your workplace are non-deductible communing expenses.
For combined business and vacation travels: plan wisely!
If your trip is mainly for business, 100% of the transportation costs (airfaire, mileage etc) are deductible. If the trip is mainly for vacation, none of the transportation costs are deductible.
Business meals : temporary 100% tax deduction for 2021 & 2022
Restaurant have struggled greatly during the COVID19 pandemic. As a result, the government has provided new tax relief: you can deduct 100% of business-related food and beverages expenses incurred at restaurants for tax years 2021 & 2022 (as opposed to 50% previously).
Records : keep a detailed log to claim a travel tax benefit!
For each trip, you should keep a log / diary that answers the questions “who, what , when, where and why”: the log should include the date, the destination, the business purpose, the amount of the expense, the business relationship between the taxpayer and the persons and the mileage.
When using a car (yours or your employer’s) for travelling, you need to keep a mileage log of your business travels. The log should be prepared right after the trip (contemporaneous requirement) to be valid.
To know more about how long to keep a mileage log: https://www.kbfinancials.biz/retention-des-documents.html
What method to deduct: actual cost vs standard rate?
Self-employed individuals get the most generous and straightforward deduction when using their personal car: they can deduct either the actual costs or a mileage standard rate (57.5 cents per miles in tax year 2020).
To know more about other tax deductions for the self-employed: https://www.kbfinancials.biz/additional-tax-deductions-for-self-employed-individuals.html
The key to maximizing your tax deductions is to keep good records. Contact Karine Bauer at Kbauer Financials LLC to optimize your tax deductions. As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional. Karine Bauer, EA is an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. She is an experienced tax professional with more than 20 years of international experience.
Bear in mind the date of this article as tax laws change overtime.
Updated – July 30th, 2021