Guide to Tax Deductions for Business Travel

Maximize deductions with strategic planning and careful record-keeping

By Betty W. Stark, Business travel consultant and columnist, Stark Consulting

If you take time to educate yourself on what business travel expenses are deductible and move past shoe box mode you'll go a long way toward:

1. Streamlining the record-keeping process
2. Maximizing deductibility and minimizing expenses
3. Furthering your business goals by meeting, traveling and entertaining smart.

Action Steps
The best contacts and resources to help you get it done

Know ahead of time what the IRS allows

The IRS has strict rules for which business travel expenses you can--and can't--deduct. If you're audited, it will be up to you to prove that your declared expenses are ordinary and necessary, not 'lavish or extravagant' and that they are directly related to your trade or business. Knowing the rules makes it easier to keep and organize the paper trail required for each business trip.

I recommend: The IRS spells it out, at length. Look for the rules governing allowable business deductions, along with specific examples, in Publication 463. If you travel internationally, look into the rules on conducting business outside the US.

Use federal per diems as a guide

To make doubly sure you don't overspend on your business trips, the Feds publish guidelines for daily lodging and meal allowances, adjusted for location. The guides are intended for government employees and contractors but the IRS uses them to measure whether your deductions fall in the 'lavish or extravagant' category.

I recommend: Familiarize yourself with the federal rules for domestic and foreign per diems that relate to your frequent destinations.

Know the rules for attending meetings and conventions

Whether you're attending someone else's business meeting, convention or cruise seminar or planning one for your own staff, clients and/or vendors, to avoid nasty surprises at tax time know in advance what's deductible and what's not.

I recommend: Check out the deductibility rules for domestic and foreign meetings. Pay special attention to IRS rules for the deductibility of meetings on cruise ships.

Track expenses and organize receipts

The IRS will want proof of the 'who, what, where, when, and why' of your business travel deductions. It's more important THAT you keep careful records than HOW you do it. Low-tech or high, the more organized your receipts and supporting documents are at tax time, the better.

I recommend: If a simple filing system is more your style, look into Office Depot's storage and filing systems. Check out the American Express OPEN card for small business; with the card, you'll have access to a web-based expense tracking program. ExpensAble gets the job done too.

Get professional help

If you lack the time or the inclination to decipher all the IRS regulations on business travel, get professional help.

I recommend: Find a CPA firm in or near your home base zip code.

Helpful advice for making the most of this Guide

• •  Don't put off organizing your receipts. Doing it automatically after each trip is a lot easier than scrambling just before tax time.
• •  Think you can deduct the cost of a vacation by tacking on a couple of business appointments? Think again; the IRS has specific guidelines for how much time you must devote to business before you can head to the beach or golf course.
• •  Instead of using the 'per diem' method to assign trip expenses, you can opt to tally your actual costs for food, lodging, taxis etc. Careful record-keeping is essential.
• •  Even if you hire a professional to interpret the IRS code and prepare your returns, you'll want to get your receipts and records in order.