When it comes to travel expenses related to your business, the IRS allows you to deduct two types: local and “away from home”.
You can deduct local transportation expenses incurred for business purposes such as the cost of getting from one location to another via public transportation, rental car, or your own automobile, including:
- Rail fare and bus fare
- Costs associated with use and maintenance of an automobile used for business purposes
- Business trips from home office and back (if your main place of business is your personal residence)
You generally cannot deduct lodging and meals unless you stay away from home overnight. Meals may be partially deductible as an entertainment expense.
Away From Home
Here’s a list of some deductible away-from-home travel expenses:
- Meals (limited to 50 percent) and lodging while traveling or once you get to your away-from-home business destination.
- The cost of having your clothes cleaned and pressed away from home.
- Costs for telephone, fax or modem usage.
- Costs for secretarial services away-from-home.
- The costs of transportation between job sites or to and from hotels and terminals.
- Airfare, bus fare, rail fare, and charges related to shipping baggage or taking it with you.
- The cost of bringing or sending samples or displays, and of renting sample display rooms.
- The costs of keeping and operating a car, including garaging costs.
- The cost of keeping and operating an airplane,including hangar costs.
- Transportation costs between “temporary” job sitesand hotels and restaurants.
- Incidentals, including computer rentals, stenographers’fees.
- Tips related to the above
Entertainment and Meal Expenses
There are limits and restrictions on deducting meal and entertainment expenses. Most are deductible at 50 percent, but there are a few exceptions. Meals and entertainment must be “ordinary and necessary” and not “lavish or extravagant” and directly related to or associated with your business. They must also be substantiated.
Entertaining at Home
Your home is considered a place conducive to business. As such, entertaining at home may be deductible providing there was business intent and business was discussed. The amount of time that business was discussed does not matter. Reasonable costs for food and refreshments for year-end parties for employees, as well as sales seminars and presentations held at your home, are 100 percent deductible.
Sports Arena Box Seats
If you rent a skybox or other private luxury box for more than one event, say for the season, at the same sports arena, you generally cannot deduct more than the price of a non-luxury box seat ticket. Count each game or other performance as one event. Deduction for those seats is then subject to the 50 percent entertainment expense limit.
If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. The amounts separately stated for food and beverages must be reasonable.
Yachts, Pools, Tennis Courts, etc
Deductions are disallowed for depreciation and upkeep of “entertainment facilities” such as yachts. hunting lodges, fishing camps, swimming pools, and tennis courts. Costs of entertainment provided at such facilities are deductible, subject to entertainment expense limitations.
Club and Organization Dues
Dues paid to country clubs or to social or golf and athletic clubs, however, are not deductible. Dues that you pay to professional and civic organizations are deductible as long as your membership has a business purpose. Such organizations include business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards. To avoid problems qualifying for a deduction for dues paid to professional or civic organizations, document the business reasons for the membership, thecontacts you make and any income generated from the membership. Entertainment costs, taxes, tips, cover charges, room rentals, maids, and waiters are all subject to the 50 percent limit on entertainment deductions.
Proving Expenses are Business-Related
Expenses are directly related if you can show:
- There was more than a general expectation of gaining some business benefit other than goodwill.
- You conducted business during the entertainment.
- Active conduct of business was your main purpose.
Record-keeping and Substantiation Requirements
Tax law requires you to keep records that will prove the business purpose and amounts of your business travel, entertainment, and local transportation costs.
For example, each expense for lodging away from home that is $75 or more must be supported by receipts. The receipt must show the amount, date, place, and type of the expense. The most frequent reason that the IRS disallows travel and entertainment expenses is failure to show the place and business purpose of an item. Therefore, pay special attention to these aspects of your record-keeping.
Keeping a diary or log book--and recording your business-related activities at or close to the time the expense is incurred--is one of the best ways to document
your business expenses. If you need help documenting business travel and entertainment, just call or email us. We’ll be glad to provide guidance.