Travel Expense – Audit Proof Help You will Need!

When Mixing Vacation With Business Travel

If you go on a business trip and add on some vacation days, you can deduct some of the expenses. The costs of getting to and from the scene of your business activity, which includes travel expense to and from the airport, the airfare itself, baggage tips, cabs to and from the airport, etc. Costs to drive your personal car is included. Your domestic transportation costs are 100% deductible as long as the primary reason for the trip is business rather than pleasure. But, if vacation is the primary reason for your travel, none of your transportation expenses are deductible. The IRS audit rules doesn’t specify how to determine if the primary reason for domestic travel is business. The number of days spent on business as opposed to pleasure is key. We can look to the rules covering foreign travel for guidance on this issue. Your travel days count as business days, as do weekends and holidays if they fall between days devoted to business and it would be impractical to return home. “Standby days,” when your physical presence is required, also count as business days, even if you may not actually work on those days. Any other day principally devoted to business activities during normal business hours is also counted as a business day, and so are days when you were planning to work but couldn’t because of reasons beyond your control such as local transportation or utility problems. You should be able to claim business was the primary reason for a trip whenever the business days exceed the personal days. Be sure to keep proof about this and keep it with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or training seminar, keep the program and take some notes to show you attended the sessions. Once at the destination, your out-of-pocket expenses (lodging, hotel tips, 50% of meals, seminar and convention fees, cab fare, etc.) for business days are fully deductible. Expenses for personal days are usually nondeductible Employer reimbursements for the business portion of an employee’s expenses are not taxable income to the employee as long as the employer requires an accounting. IRS exam will require invoices, proof of payment, business purpose, and the usual ordinary and necessary rules.

When the employer doesn’t reimburse an employee, the 50% disallowance rule for meal and entertainment expenses falls on the employee’s shoulders. After this disallowance rule is applied, employees can deduct the remainder of their unreimbursed business travel expense on their personal tax returns as a miscellaneous itemized deduction, subject to the 2% of adjusted gross income deduction floor.

Tax Benefits When You Include A Saturday Night Stay Over in Your Travels

Maximize deductions for the personal portions of a trip is with a Saturday night stay over that reduces the overall cost of the trip. If you can show staying the extra day or two costs less than coming back home immediately after business is concluded, the IRS allows you to deduct your additional meal and lodging expenses (subject to the 50% rule for meals) for the extra day(s). You still must have a dominant business purpose for making the trip in the first place. Be sure to document that your airfare savings equaled or exceeded the out-of-pocket costs of staying the extra day(s). Keep the proof with your tax records.

This is a pretty big topic. Especially when you deal with foreign travel. There are several tax guides that cover this. Always remember that even if you have the documentation needed to prove your deductions, the auditor may take a position that you are not able to defend. If you need someone experienced enough to tackle the IRS, please call us at 713-774-4467.

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