Understanding Travel Tax Deduction Rules

When the IRS develops special rules for a particular business expense category, you know it’s the their way of discouraging you from claiming deductions in this category.

Take travel expenditures. The rules around this expense category are complicated; however, every business owner should understand the deductibility restrictions.

First, you’re not allowed to deduct the cost of a trip unless its primary purpose is business. As long as the trip’s main objective is business, you can deduct all your transportation costs. There is no deduction permitted for family members unless they’re business employees needed on the trip.

Second, a business day is defined as one in which you conduct any business activity. So, if you spend the morning in a meeting and the afternoon sightseeing, it’s still considered a business day. But a day of sightseeing without a business element is not deductible.

You also can’t deduct the cost of lodging or meals on days that don’t include business. And remember, you can only deduct 50% of business meals, including meals on business travel days.

If the purpose of your trip is primarily nonbusiness, the only expenses you’re permitted to deduct are those directly related to business. For example, when you take a vacation but have one dinner with a client, that meal is tax deductible subject to the 50% limitation.

One leniency the IRS has allowed is that you don’t need receipts for travel expenses of $75 or less, unless the deduction covers lodging. So, don’t worry about receipts for short taxi rides.

Turn to Your Accountant for Business Advice

Overlooking a source of good advice is almost as detrimental to your business as not planning for the future. But you don’t have to look far for valuable resources: Why not turn to your trusted small-business accountant?

Accountants handle more than bookkeeping and tax return preparation. They’re trained to analyze and interpret data; render expert suggestions; and evaluate situations that confront you.

If you’re not meeting regularly with your accountant, now is the time to start. Most accountants are able to schedule appointments before the busy tax season starts; so tap into this resource soon.

Bookkeeping Advice

Before meeting with your accountant, talk with your bookkeeper to be sure that all transactions are correctly recorded, and identify any unresolved details that need accountant input.

For example, tax misclassification is an easy mistake for your bookkeeper to make, due to lack of communication. Many small-business owners pay nondeductible personal expenses from company funds but forget to inform their bookkeeper. As well, expenditures such as travel combine both personal and business elements and often are entered incorrectly.

Once you’ve talked to your bookkeeper, prepare a complete record of all your business transactions for your accountant, as he or she is a crucial resource for verifying the tax treatment of every entry.

Efficiency Advice

Come up with a list of nonbookkeeping topics to discuss with your accountant. Consider business planning and management issues. An accountant is trained to evaluate your inventory control system and the efficiency of your personnel based on the information in your financial statements.

The right advice can provide you with insights into your operations.  For example, your accountant may be able to explain how selling more of an item could reduce your profit margin. Or he or she may spot the fact that you have too many employees in one area and too few in another. Making suggested adjustments can boost your profits.

Growth Advice

If you’re thinking of expanding your business, your accountant’s advice is vital. Before purchasing new equipment or adding to staff, you need to know the impact on cash flow.

Your accountant can determine the break-even point for any growth initiative. In many cases, seizing new opportunities may cost you too much. An accountant recognizes when the risk for running out of cash is too great and recommends alternatives. If you decide to borrow for expansion, the cash flow projection prepared by your accountant will improve your ability to obtain financing.

Technology Advice

Accounting data is so essential to ongoing business operations that business owners require assistance protecting it. Cloud storage technology provides security and remote access to accounting records. This inexpensive technology enables you to outsource bookkeeping tasks, instead of hiring an in-house employee. Plus, you can give your accountant year-round access to your company’s financial records while you retain control over the data.

Your accountant is the proper choice for advice on a multitude of issues. Rely on these advisory services; you won’t find a better consultant.