Tossing business travel receipts into your briefcase or desk drawer or even a shoe box is easy at the time — out of sight, out of mind. But come tax time, you'll wish you had been more organized. And it doesn't hurt to know a few of the IRS rules for business travel deductions ahead of time either.
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:
- Streamlining the record-keeping process
- Maximizing deductibility and minimizing expenses
- Furthering your business goals by meeting, traveling and entertaining smart.
Know ahead of time what the IRS allowsThe 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.
Publication 463. If you travel internationally, look into the rules on conducting business outside the US.
Use federal per diems as a guideTo 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.
domestic and foreign per diems that relate to your frequent destinations.
Know the rules for attending meetings and conventionsWhether 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.
Track expenses and organize receiptsThe 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.
Get professional helpIf you lack the time or the inclination to decipher all the IRS regulations on business travel, get professional help.
- 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.