July 29, 2014
Tax Tips for the Well-traveled Businessperson
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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
Article Highlights:
The IRS requires that lodging expenses (and other expenses of $75 or more) be substantiated by records or other evidence. Acceptable records include diaries, logs, receipts, paid bills and expense reports. The records should disclose the amount, date, place and essential character of each expense. Diaries and logs should be notated close to the time of the expense; newly created diary, log and calendar entries made months (or years) later when the IRS requests documentation in an audit are less likely to pass muster than those that were prepared when the travel and expenses occurred.
Meal expenses are only deductible if the trip is overnight or long enough that there is a need to stop for sleep or rest in order to properly perform one’s duties. The amount of the meal expenses must be substantiated, but instead of keeping records of the actual cost of meal expenses, a “standard meal allowance” ranging from $46 to $71 per day can generally be used, depending on where and when the individual travels. Generally, the deduction for unreimbursed business meals is limited to 50% of the cost that would otherwise be deductible.
Lodging expenses must be substantiated with actual receipts and are 100% deductible. Meals included in lodging expenses, such as room service or dining costs charged to a hotel room, must be separately identified, since meals have the 50% limitation noted above.
Taking the Spouse Along? - Generally, deductions are denied for travel expenses paid or incurred for a spouse, dependent or employee of the taxpayer on business unless the:
(1) The spouse or dependent is an employee of the taxpayer, and
(2) The ravel of the spouse, dependent or employee is for a bona fide business purpose, and
(3) The expenses would otherwise be deductible by the spouse, dependent or employee.
Strategy - The law allows a deduction for the single rate for lodging, and there is frequently no rate difference between one and two occupants for a room. Thus, virtually the entire lodging expenses for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the transportation would be deductible. This generally also applies to taxis at the destination. The only substantial cost that is not allowed is the costs of the spouse’s meals that, even if they were deductible, would be reduced by the 50% rule. If traveling by air or rail, the cost of the spouse’s tickets is also not deductible.
Have questions about business travel expenses? Give our office a call.
- Acceptable Records
- Meals
- Spouse Expenses
The IRS requires that lodging expenses (and other expenses of $75 or more) be substantiated by records or other evidence. Acceptable records include diaries, logs, receipts, paid bills and expense reports. The records should disclose the amount, date, place and essential character of each expense. Diaries and logs should be notated close to the time of the expense; newly created diary, log and calendar entries made months (or years) later when the IRS requests documentation in an audit are less likely to pass muster than those that were prepared when the travel and expenses occurred.
- Keep good records of your travel expenses.
- Document the business purpose and the expected business benefit.
- Retain your travel itinerary to document the business activity while away.
Meal expenses are only deductible if the trip is overnight or long enough that there is a need to stop for sleep or rest in order to properly perform one’s duties. The amount of the meal expenses must be substantiated, but instead of keeping records of the actual cost of meal expenses, a “standard meal allowance” ranging from $46 to $71 per day can generally be used, depending on where and when the individual travels. Generally, the deduction for unreimbursed business meals is limited to 50% of the cost that would otherwise be deductible.
Lodging expenses must be substantiated with actual receipts and are 100% deductible. Meals included in lodging expenses, such as room service or dining costs charged to a hotel room, must be separately identified, since meals have the 50% limitation noted above.
Taking the Spouse Along? - Generally, deductions are denied for travel expenses paid or incurred for a spouse, dependent or employee of the taxpayer on business unless the:
(1) The spouse or dependent is an employee of the taxpayer, and
(2) The ravel of the spouse, dependent or employee is for a bona fide business purpose, and
(3) The expenses would otherwise be deductible by the spouse, dependent or employee.
Strategy - The law allows a deduction for the single rate for lodging, and there is frequently no rate difference between one and two occupants for a room. Thus, virtually the entire lodging expenses for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the transportation would be deductible. This generally also applies to taxis at the destination. The only substantial cost that is not allowed is the costs of the spouse’s meals that, even if they were deductible, would be reduced by the 50% rule. If traveling by air or rail, the cost of the spouse’s tickets is also not deductible.
Have questions about business travel expenses? Give our office a call.
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