Know What Kind of Documents are Needed When Claiming Business Travel Expenses

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Know What Kind of Documents are Needed When Claiming Business Travel Expenses

May 12, 2017 Posted by Sanjiv No Comments

It is clear that taxpayers can deduct regular travel expenses when the trip is entirely business related. Additionally, if the taxpayer is on a domestic business trip and made personal side trips or stayed longer than the business purpose required, then the expenses must be allocated between business and personal. The portion of the trip dedicated to business activities is deductible. Any portion related to personal activities is not deductible.

However, if a trip is primarily for personal activities, such as a vacation, then the only deductible business expenses are those incurred at the destination that is directly related to the trade or business and none of the expenses for traveling to the destination are deductible.

IRS parameters

In general, all trip expenses must be recorded on the travel expense statement including procurement card expenses. If a trip is paid for entirely by procurement card, a travel expense statement must be completed and approved. It is not necessary to enter this travel report in AIS; however, the statement and documentation must be retained in the department. As a best practice, the supplemental procurement card expenses form should be used to detail procurement card activity. If the supplemental form is not completed, all procurement card expenses should be clearly marked on the travel expense statement. Procurement card expenses should be deducted from the total expense using line #22. The original procurement card receipts should be kept in the department or school procurement card files.

Even if the expense is clearly deductible the deduction can be denied if not substantiated. Taxpayers must keep adequate records and documentary evidence. However, the taxpayer can use the per diem method of deducting expenses and still satisfy the substantiation requirements for the amount of the expense. The time, place, and business purpose must still be substantiated through adequate records and documentary evidence. The per diem method can be used by employers, employees and self-employed individuals. Self-employed individuals and employees can only use the per diem method for a meal and incidental expenses, not lodging. Additionally, a taxpayer, whether employer or employee or self-employed can alternate during the year between the per diem method and the actual expense method. The per diem rates for travel can be found at www.gsa.gov/perdiem.

Taxpayers in the transportation industry may use a special per diem rate. A taxpayer eligible for this rate is in the transportation industry if the work directly involves moving people or goods by airplane, barge, bus, ship, train or truck and often requires travel during a single trip to localities with differing rates in the per diem tables. These rates, if chosen, must be used for the entire year.

According to the streamlined guidelines set by the Internal Revenue Services (IRS), there are a couple of documentation that should always be kept, regardless of circumstances or situation, to make sure that you can have an easier time in proving that your trip was primarily for business purposes. While it is best to log in everything, these ones below are the most crucial documentations needed to stake your claim.

Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following:

  • Cash register tapes
  • Deposit information (cash and credit sales)
  • Receipt books
  • Invoices
  • Forms 1099-MISC

Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and that the amount was for purchases. Documents for purchases include the following:

  • Cancelled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred
  • Cash register tape receipts
  • Credit card receipts and statements
  • Invoices

Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and a description that shows the amount was for a business expense. Documents for expenses include the following:

  • Cancelled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred
  • Cash register tapes
  • Account statements
  • Credit card receipts and statements
  • Invoices
  • Petty cash slips for small cash payments

Travel, Transportation, Entertainment, and Gift Expenses. If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses.  For additional information, Publication 463 of the IRS document provides more details with regard to Travel, Entertainment, Gift, and Car Expenses.

Assets are the property, such as machinery and furniture that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets. Documents for assets should show the following information:

  • When and how you acquired the assets
  • Purchase price
  • Cost of any improvements
  • Section 179 deduction taken
  • Deductions are taken for depreciation
  • Deductions are taken for casualty losses, such as losses resulting from fires or storms
  • How you used the asset
  • When and how you disposed of the asset
  • Selling price
  • Expenses of sale

The following documents may show this information.

  • Purchase and sales invoices
  • Real estate closing statements
  • Cancelled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred

Meals

Amounts paid for food and reasonable restaurant gratuities while traveling away from home are another deduction. The IRS gives taxpayers two methods to calculate meal costs. It publishes daily per diem rates applicable to various geographic areas that you can use without regard to the amount actually spent. Alternatively, you can keep records of all meals and list the total costs paid. Regardless of the method chosen, the total allowable meal expense gets a further 50 percent deduction. Calculate this reduction before applying the 2 percent adjusted gross income limitation.

Instead of keeping records for meal costs, the taxpayer can claim an IRS meal allowance, which is referred to as the M&IE per diem rate (for meals and incidental expenses). The M&IE rate includes tips for service people such as porters, and hotel maids, but does not include the cost of laundry, cleaning, or pressing of clothing, which can be deducted separately with the proper documentation. Self-employed individuals can claim the M&IE allowance, but employees may only claim the allowance if they are not reimbursed under an accountable plan, if their employer is not related to them, and if they do not own more than 10% of the employer’s outstanding stock.

The standard meal allowance for travel within the Conterminous (or Continental) United States (CONUS), meaning locations within the continental United States, is $46 per day, although higher rates may apply to more expensive localities such as major metropolitan areas and resort areas. Outside of the Conterminous United States (OCONUS) rates apply for travel to Alaska, Hawaii, Puerto Rico, United States possessions, and foreign countries. Generally, only 75% of the allowance can be claimed for the 1st and last days of the trip. Workers in the transportation industry who are subject to the Department of Transportation hours of service limits, such as interstate truck drivers and pilots can deduct 80% of their meal costs. CONUS rates can be found by zip code or by city and state.

If meals are not claimed on a particular day but the taxpayer had other incidental costs, then instead of using actual costs, an allowance of $5 per day can be claimed for the incidental expenses, even if the actual expenses were less than that.

Important documentation features

Substantiate is a fancy way to say: the taxpayer has to prove it. Taxpayers must keep evidence of business travel expenses in order to deduct them. The information that must be noted:

  1. The date. The date the expense was incurred will usually be listed on a receipt or credit card slip; appointment books, day planners, and similar documents have the dates pre-printed on each page, so entries on the appropriate page automatically date the expense.
  1. The amount. How much you spent, including tax and tip for meals.
  1. The place. The nature and place of the entertainment or meal will usually be shown by a receipt, or you can record it in an appointment book.
  1. The business purpose. Show that the expense was incurred for your business — for example, to obtain future business, encourage existing business relationships, and so on. What you need to show depends on whether the business conversation occurred before, during, or after entertainment or a meal.
  1. The business relationship. If entertainment or meals are involved, show the business relationship of people at the event — for example, list their names and occupations and any other information needed to establish their business relation to you.

Cautions

Trying to write off your personal vacation as a business expense isn’t worth the risk. “You have to recognize that travel and entertainment is a highly suspect area,” Barbara Weltman, a tax and law expert and the author of JK Lasser’s Small Business Tax Guide, said. “It’s an area that the IRS is on the lookout for because of the potential of crossing the line a little bit and claiming business write-offs for what are really personal expenses. You can assume that if you get audited the IRS is going to look very closely at this area, so you want to make sure you do things right.”

When traveling or entertaining for business purposes, it’s important to document everything.  It’s not enough to just keep receipts, you also need to document who you spoke with, what you spoke about, and how it was related to your business. For travel, the IRS also requires you to keep a written or electronic log, made near the time that you make the expenditure, recording the time, place, amount and business purpose of each expense. This once took the form of expense reports. Increasingly, online programs and even apps, like Tax Tracker, are available for documenting business expenses.

Weltman also suggests creating a paper trail that can be traced if you are audited by the IRS. Take notes on meetings you attend while traveling, keep programs of conferences you attend, sign into conferences, and keep e-mails sent to those you met with during business meetings.

As with all deductible business expenses, you are also expected to keep receipts for travel and entertainment purchases. For meals, make sure that the receipt includes the exact cost of the meal as well as the name and location of the restaurant. Get in the habit of writing down who was present (names and business relationship) and what business was discussed.

For entertainment expenses, document: the amount of each separate expense; the date of the entertainment; the name, address, and type of entertainment; the business reason for the entertainment; and the name, title, and occupation of the people who you entertained.

Whenever business expenses are claimed it is a good idea to keep detailed records and receipts for everything. Business expenses can be charged to a practice credit card, receipts should be obtained from taxi drivers or other modes of transportation, and a detailed copy of the hotel bill should be kept. For the show, meeting or conference, a copy of all charges, as well as a copy of the convention schedule/agenda, can help prove it is relevant to your practice.

 

The safe way to go in all of this is to just diligently record all your business-related travel expenses in a log complete with dates, times, descriptions, locations and amounts. Include your travel expenses, lodging expenses and the costs of your meals. Also include taxis, fees, tips and any other incidental expenses.

No matter how you document your expenses, you are supposed to do it in a timely manner. You don’t need to record the details of every expense on the day you incur it. It is sufficient to record them on a weekly basis. However, if you’re prone to forget details, it’s best to get everything you need in writing within a day or two. Just make sure to keep all supporting paper documentation of the recorded expenses. This way, when you present.

A Business Owner’s Guide in Deducting Business Travel Expenses

Apr 2, 2017 Posted by Sanjiv No Comments

You’ve worked hard all year long that you can’t find time for some vacation. You’re worried that your business will suffer when you go away for several days. Or you may be concerned about the expenses that you will incur.

But did you know that as a business owner, you can attend a convention or seminar, squeeze in some days of pleasure, and then deduct certain expenses in your next tax return?

Sure, you won’t be able to deduct the travel expenses of your spouse or children, but with good planning, you’ll be able to get a free ride to and from your destination. You can also write off certain expenses like your lodging, meals, and even the cost of cleaning your clothes.

Think about the possibilities. You can spend a week in the Bahamas for a convention or conference and then deduct your expenses accordingly.

But before you start booking a trip to the Bahamas, it is imperative to get familiar with the rules first.

Writing Off Expenses during a Convention

The IRS is very clear about deducting travel expenses for a business convention— the participation or attendance of the taxpayer to the activity should benefit his or business.  This also applies

Let’s say you own a computer software shop. You attend a three-day IT conference in Puerto Rico, where you were able to meet some clients and bag new deals along the way.

Because the participation in the convention benefited your business, you can write off the expenses related to the said trip.

But if the convention is held for a purpose that isn’t related to your business such as political, investment, or social issues, then you won’t be allowed to deduct your travel expenses.

You can claim travel expenses related to your participation in a convention held within the United States, and other North American territories such as:

  1. Bahamas
  2. Aruba
  3. American Samoa
  4. Baker Island
  5. Bermuda
  6. Micronesia
  7. Canada
  8. Costa Rica
  9. Dominican Republic
  10. Guam
  11. Jamaica
  12. Puerto Rico
  13. S. Virgin Islands
  14. Mexico
  15. Kingman Reef
  16. Barbados
  17. Jarvis Island
  18. Netherlands Antilles
  19. Palau
  20. Saint Lucia
  21. Antigua and Barbuda
  22. Johnston Island
  23. Panama
  24. North Mariana Islands

 

However, there are two things that the IRS will look for in determining whether you can write off your expenses during a conference or convention held outside the US.

Aside from the meeting directly related to your business, the IRS will also determine the reasonableness of the convention or conference being held outside the US.

The following factors will be considered when determining the practicality of a conference or convention held within the North American region:

  1. Purpose of the meeting as well as the activities that took place
  2. Purpose of the sponsoring groups
  3. Homes of the active members of the sponsoring organization or group

Going back to our example, you can argue that the three-day conference held in Puerto Rico is reasonable because most of the active members of the group that sponsored the event are based in Puerto Rico, Mexico, Cuba, and nearby territories.

The IRS will likely call for an audit in case the sponsoring organization and all of the participants in the convention work or live in the United States. Obviously, the tax authorities will feel that the convention isn’t necessary because the participants and the sponsoring group are based in the US.

Here’s a tip–keep the official agenda or program of the convention or workshop which you are participating in. This can prove that your claim is warranted, especially if you can show that the official agenda of the convention is related to your business or trade.

Allowable Deductions

If you are able to satisfy the requirement of the IRS on business travel, particularly participation or attendance in conventions, you will be able to write off the following expenses:

  1. Transportation
  2. Lodging
  3. Baggage and Shipping
  4. Meals
  5. Cleaning
  6. Communication expenses
  7. Others

Most of these expenses are 100% deductible, except for meals.

Transportation covers your travel expenses from your home and business destination. It doesn’t matter if you used your car, took a bus, rode a train, or traveled by airplane. You are legally allowed to claim 100% of your transportation expenses for a legitimate business travel.

Obviously, you can’t claim a free ticket or a free ride as a reward for being a frequent traveler.

In case you had to take a cab or rent a car to shuttle back and forth from your hotel to the place where the convention was held, you can also claim those expenses as tax deductible. The same goes for the taxi or car rental costs for bringing you from the airport or station to your hotel.

If you brought your own car, you can deduct costs of gasoline, toll, and parking.

You can also claim 100% of your lodging expenses during the entire business trip.

You can also claim the costs of laundry and dry cleaning, in case you needed those services while at a convention. Business call expenses may also be written off.

In fact, you may even deduct tips that you pay for the above mentioned services.

Cruise Ship Conventions

You may wonder what deductions you can claim if you attended a convention onboard a cruise ship.

You may claim the same deductions, but you are limited to a ceiling of $2,000 every year if you attended a cruise ship convention.

Moreover, there are certain requirements that you will have to meet if you want to qualify for a tax deduction for a cruise ship convention or similar meeting.

First, the cruise ship where the convention or seminar was held should be registered in the US. This is a tough requirement to meet, as there are only a handful of ocean-worthy ships that are registered in the US.

Thus, you should check first the registry of the ship before signing up for a cruise ship convention. If not, then the expenses you will incur won’t be tax deductible.

Another requirement that you should meet if you are to write off your attendance in a cruise ship convention is that the ship must make all its ports of calls in the US.

Moreover, you are required to show a written statement that details the number of days you spent on the cruise ship, a breakdown of the number of hours spend each day to business activities, and a program of activities of the entire convention.

You will also have to attach a written statement signed by an officer of the group that sponsored the said activity. The statement should detail the daily schedule of business activities of the convention, as well as your hours of attendance at the said activities.

As you can see, it is quite a task for business owners to write off cruise ship conventions. The IRS obviously does not want taxpayers to deduct their vacations in their tax returns.

Foreign Travel

If business travel within the US is closely scrutinized by the IRS, you can expect the same for foreign travel.

Foreign travel spent solely for business is 100% deductible. This means that if you spend 100 percent of your waking time on foreign soil for business-related activities, then you can claim all your travel related expenses.

What if you didn’t spend all your time abroad for business? Can you still make a claim?

Yes, provided you meet any of these exceptions:

  1. You don’t have substantial control over the trip. Employees who were reimbursed for their travel expense allowance as well as those who aren’t related to the employer are allowed to claim their travel expenses under said circumstance.

But since you are the business owner, then it means you can control the timing of your trip. Hence, you won’t be able to write off your travel expenses abroad.

  1. Prove that vacation wasn’t the primary consideration in arranging the trip. Even if you are the business owner who has control over arranging the trip, you can write off your expenses if you can prove that vacation wasn’t the main consideration in the trip.
  1. You were abroad for less than a week. Your trip may be considered solely for business if you were outside the US for 7 days or less. The IRS says you should count the day you return to the US, and not the day that you left the country.
  1. You spent 75 percent of your time for business. You may be outside the country for more than a week, but you can still deduct expenses during your business travel if you can prove that you spent less than 25 percent of your time on personal activities.

For instance, you spent 20 days in Europe. After 15 days of non-stop meetings, you spent four days going around. The final day was then for your travel back to the US.

Since you spent 75 percent of your time in Europe for business activities, you can deduct your business-related expenses during the trip. This includes the cost of round-trip plane fare, and 50 percent of your meal expenses during the 15 days.

Travel Primarily for Personal Reasons

It should be clear by now that you can’t claim deductions for a vacation or personal trip. Yet there are times when you are on vacation and fortunately stumble upon a business opportunity. Can you make a claim on the expenses that you incurred on a business-related activity?

The answer is yes. You can if you can prove that the expenses are directly related to your trade, or even better, can boost your business.

Let’s go back to our example.

You were on a vacation with your family in Miami when you heard of a three day Internet security seminar.  Since you run a computer software business, you felt that attending the seminar can update you on the latest in Internet security. Or that you can get new clients by participating in the said activity.

You can deduct registration fees, transportation costs, and meal expenses that you incurred while you were at the seminar. You can even charge your hotel fees, in case you booked one during the course of the activity.  The same goes for your laundry and dry cleaning expenses.

But can you charge your airfare? No, since you had traveled to Miami primarily for personal reasons.

How to Avoid an Audit

Now that you have an idea on the deductible expenses that you can claim during a legit business travel, you may wonder—how can I avoid getting audited by the IRS?

Here are some tips that you should keep in mind:

  1. Record everything you did during your business travel. The last thing that you want to happen is for the IRS to conduct an audit after you had written off travel expenses you had incurred two years ago. By then, you would likely have forgotten the details of your meetings, or lost hotel bills and receipts.

For example, write down the names of the people you had lunch with at the back of a receipt issued by a restaurant. You should also keep all the hotel receipts you had.  And take photos of your meetings to prove that you indeed had business activities during your trip.

  1. Don’t deduct travel expenses of your spouse. If you brought your significant other with you, then you won’t be able to claim a deduction for her expenses unless she’s your employee or she played an essential role during the business travel. And no, that doesn’t mean taking down notes for you or socializing with your clients.

You must prove that your spouse’s presence during the travel was necessary, like serving as your translator.

  1. Be reasonable. The tax authorities would know if you claim extravagant expenses. So unless you’re treating a client who’s a billionaire, then you probably don’t want to expense a fancy dinner at the Ritz.

So, are you ready to mix business with pleasure on your next travel.

How Freelancers Can Write Off their Business Travel Expenses

Mar 11, 2017 Posted by Sanjiv No Comments

While there are many risks of being a freelancer, it cannot be denied that there are plenty of benefits, too.

One advantage of being self-employed is that you can make more money than you would if you were an employee. You can also work at the comforts of your home.

Moreover, freelancers like you also get to enjoy many tax deductions like home office and business travel.

If you haven’t realized, going on a business travel can benefit your trade.

Here are three good ideas that you may want to explore if you want to maximize your tax deductions by going on a business trip anytime soon:

  1. Visiting a client

Perhaps you have a client in an area away from your tax home, or your primary place of work. You might want to visit that client and several customers to strengthen you relationship with them.

You don’t need to spend the entire them talking to them. You can schedule a meeting for a few hours.  Just make sure to keep note of the things you talked about during the meet.

  1. Meeting a Vendor

Do you know a supplier of a vendor that you can meet in Miami or another area that’s far from your home? You might want to meet him to negotiate a new deal, or how you can improve your business relationship together.

  1. Attend a conference

Are there any workshops, seminars, or conventions that you can participate in?  Attending one that’s relevant to your trade may teach you new skills or update your knowledge. The activity may also give you the perfect time to meet prospective clients or vendors.

What expenses can you write off?

 Any of the abovementioned ideas are justifiable enough to be the purpose of your next business travel. What’s more exciting is that you can deduct all your business travel-related expenses on your next tax returns.

Remember this–you can write off your business travel expenses as long as the primary purpose of your trip is ordinary and necessary for your work.

An ordinary expense is defined as common and accepted in the trade or business that you are in. If you are in the IT field, then your participation in an information security summit can be considered an ordinary expense.

On the other hand, the IRS considers travel as a necessary expense if it is appropriate for a taxpayer’s business.

You can write off the following travel expenses:

  1. Meal Expenses

You can also deduct the costs of meals that you had while you were on a business travel. However, there’s only a 50 percent limit on meal expenses.

There are two methods that you can choose from in figuring out your meal expenses.

The first is the actual cost.  This simply means claiming 50 percent of the actual cost of your meals during your business trip. If you are to use this method, you should have receipts or records of your actual expenses.

The second option is to deduct the standard meal allowance (SMA) of $51 a day, which is the rate for most of the small localities in the US. The advantage of this option is that you don’t have to keep every receipt, as you simply subtract the SMA.

However, the SMA is a bit low. Thus you may not be able to enjoy larger deductions on your tax return if you opt for this method.

Keep in mind that you can claim meal expenses even if your dinner or lunch with a prospective client didn’t lead to a deal. So even if you met potential clients, you can deduct the costs of their meals in your next tax return.

But you may also wonder—can you claim the meal expenses during a business meeting? After all, it is a common practice to discuss a deal or get to know a prospective partner while eating.

The answer is yes–you can also claim meal expenses that you incurred while entertaining customers or potential business partners.

In fact, it is not only the meals served to your clients that you can claim as tax deductible.  You can even include taxes and tips, cover charges if you brought your guests to a nightclub. The rent that you paid for a room in which you held a dinner party for your guests can also be deducted as a meal expense.

But the IRS won’t allow claiming deductible on lavish and extravagant meals. There’s no definite dollar amount for a lavish or extravagant meal, so it can really be tricky for most business owners to determine which meals to expense.

Let’s say that you treated a potential client to dinner at a five-star hotel. Would that be considered lavish or extravagant meal? Perhaps, but you can also justify that it is reasonable given the circumstances. Maybe the client that you met is the CEO of a Fortune 500 company, whom you just can’t bring to any ordinary restaurant.

  1. Lodging Expenses

Unlike in meal expenses where you are limited to a 50 percent tax claim, you can deduct 100% of your lodging expenses during a business travel.

You can even stay an extra day in your destination and claim associated stay-over costs. For example, you had your last meeting on a Friday, but you didn’t leave until Saturday afternoon because you wanted to get a reduced fare on that day. You can claim the stay-over costs on Saturday even though you had no business-related activities on that day.

But if you stayed for a couple more days just to enjoy the sights, then you can’t deduct the hotel charges for those extra days.

  1. Transportation Expenses

Whether you traveled by car, bus, train, or airplane, from your home to the business destination, you can write off your transportation expenses during a business trip.

But if you were provided tickets by a client, your cost is zero.

If you were able to fly because of a frequent flyer reward, then you won’t be able to claim the airfare.

You can also claim transportation expenses to and from the airport to your hotel, and the hotel to the offices of your clients or customers.

If you brought your own car, you can write off your gas expenses, toll fees, and parking. You can even charge the expenses you incurred for maintaining your vehicle, like car wash, replacement of tires, or oil change. However, you have to keep your receipts to prove that you indeed had paid for the said services while you were on a business travel.

Aside from the three major expenses, you can also write off the following:

  • Shipping of baggage
  • Dry cleaning and laundry
  • Business calls
  • Tips
  • Other out-of-pocket expenses such as computer rental fees

The rule of thumb is that expenses that are directly related to your business trip can be written off.  For example, you had paid for the shipping of your brochure or documents needed for a seminar or convention. You can deduct the shipping expenses.

But you can’t expense personal charges like gym or fitness fees. You can’t also deduct fees for movies or games.

Things to Remember Before Traveling for Business

 Now that you have learned the expenses that you can claim on your next tax return, you should then know the things that the IRS will look into before it accepts your tax deduction claim.

These include:

  1. Establish the Purpose of Your Travel

One, your travel should be primarily for business. You can prove this by showing that you have at least one business appointment or meeting schedule before you leave home.

This means that you can’t just depart for the Bahamas or Florida with the hopes of meeting a potential client there. Or collecting business cards of people you would present as business associates.

An invitation to a conference, emails, and other correspondences—these are enough to prove to the IRS that you went to a particular destination for a business-related activity.

But what if you don’t have any invitation or email proving that you went to a certain destination for a business activity?  Let’s say you want to spend a vacation in Miami, and also get some potential clients there.

You can mix pleasure with business, so to speak, by placing several advertisements in the area.

For example, you’re a distributor of computer software. You are hoping to expand your business by distributing more products in Miami.

What can you do to achieve that goal? You can post online ads showing to prove that indeed, you were looking for new business contacts in the area.

And when you get there in Miami, meet a couple of those who have responded to your advertisement. Document your meeting by taking photos, or keeping the business cards of your prospects.

However, you should also look at the time spent for business-related activities during your trip. It would be hard to justify travel costs for a week-long trip to Miami if you only spent 2-3 days meeting with clients.  The IRS will likely call your attention if you declared that you spent just half of your time in Florida meeting prospective customers or dealers.

What if your residence is just a few hours away from Miami? Does that mean you can’t claim your travel expenses as tax deductible?

You can, as long as you can prove that you had to sleep or rest in Miami so that you can meet the demands of your work. Let’s say that you slept in the hotel where you held a meeting to avoid possible traffic problems. The IRS will consider your overnight stay in Miami to be business-related, and allow you to make a claim.

  1. Allocate your expenses

If you traveled for a business meeting but also went to see some old friends or visited tourist destinations, you will have to allocate your expenses. You can only deduct your business-related expenses, and not the costs that you incurred for personal activities.

For example, you rented a car to take you to Miami from New Orleans. Your business travel amounted to around 2,000 miles round trip. But on your way back to NOLA, you decided to take a detour to Jacksonville to visit your old college buddy.

Because the detour to your college buddy is personal and not business-related, you cannot claim your expenses for that part of the trip.

Generally speaking, you can’t claim the expenses of your spouse if he or she accompanied you in your business trip unless the presence of your significant other was necessary.

No, your spouse taking down notes for you during your trip isn’t justifiable. Your partner should have done something more critical, like serving as your interpreter, or even helping you close a deal.

  1. Keep your receipts and related documents

Lastly, keep all your receipts during the trip. You may even write down details at the back of the receipt, like the names of the business associates you met and the purpose of the meeting.

If your total expense during the trip is $75, you don’t need to show your receipts, though.

Don’t throw away other papers such as conference or seminar program. Those papers can justify your tax deduction claim.

 

Going on a business travel is like hitting two birds with one stone. Your firm not only stands to benefit from you embarking on a business travel, but you can also reduce your tax obligations.

You can meet a potential client during a business travel, or strengthen your relationship with your current customers. You can also attend a convention or seminar to enhance your skills, or learn a new one.

Moreover, you can write off business travel expenses like lodging, transportation, and meals, although the latter has a limit of 50 percent of the total costs.

The IRS, though, has been quite strict when it comes to business travel claims. You can fend off an audit by properly allocating your expenses, keeping receipts and related documents, and establishing the purpose of your travel.

If you’ll follow the tips mentioned in this article, then you should have no problems in claiming business travel deductions.

Treatment of Transportation Expenses When Not Traveling Away from Tax Home

May 31, 2017 Posted by Sanjiv No Comments

When you ride a cab or get in your own car to do business somewhere, have you ever thought of your transportation costs and how much of it you can actually write off? So many materials have been written about deductible expenses when people travel away from their tax homes for business, but those that tackle deductible expenses when not traveling away from home are scarce.

Here, let’s focus on your transportation costs when you are technically not traveling away from home. But before we go to your expenses, remember first that you are considered traveling away from home if you meet the following criteria:

  • Your business or job requires you to be away from your tax home considerably longer than your ordinary day at work.
  • You need to sleep to meet the demands of your work.

If you don’t meet the above mentioned criteria, then you are not traveling away from home so this chapter is for you.

You probably know that the law mostly does not allow deductions for personal expenses, so we’re talking about business expenses here.

Transportation Expenses

By definition, transportation expenses cover your cost of transportation– may it be by rail, bus, taxi or air, as well as the cost of maintaining and driving your own car.

According to the IRS rule, these expenses include all ordinary and necessary costs of the following:

  • Going from one location to another while conducting business or performing your profession, as long as you are traveling within the general area of your tax home.
  • Visiting your customers or clients.
  • Going to a business meeting that is not within the area of your regular workplace.
  • Temporarily going from your home to a workplace when your business or job requires you to have more than one regular place of work. Here, it doesn’t matter whether your temporary workplaces are within the general area of your tax home or not.

Remember that generally, the transportation expenses that will be discussed in this chapter do not include those that you incur when you travel away from your tax home overnight, though the rules here apply when you use your own car to travel away from home overnight as this will cover car expense deductions.

Basically, the transportation expenses that you incur daily when traveling from your home to one or more of your regular workplaces are considered nondeductible. That means that if you ride a bus to travel from your home to one of your regular workplaces, you are generally not allowed to write off the commuting expenses that you incur. However, there are certain exceptions to this rule.

If you go between your home and your temporary workplace outside the general area of your residence, you are allowed to deduct the transportation expenses that you incur. You can also deduct your daily transportation expenses in the following situations:

  • If you have at least one regular work location away from your home.
  • If your home is your regular workplace or place of business and you incur transportation expenses when you go to your home and another work location. However, that work location should fall in the same industry or business, regardless of the distance and regardless of whether the work you do there is permanent or temporary.

When Transportation Expenses are Deductible

Before we go into the finest details, here is a summary of the key locations you should consider and the instances when you can and cannot deduct your transportation expenses:

  • This home is not necessarily your tax home but the place where you live. The transportation expenses that you incur when you travel to and from your regular or main place of work are considered personal commuting expenses and are therefore nondeductible.
  • Regular or Main Job. This refers to your main place of work or business. In the event that you have more than one job, you can determine which of your workplaces your main workplace is by considering the time you spend at each, as well as the activities you have at each and the income you earn at each. While your transportation expense from your main job to your home are nondeductible, your expenses from your main work location to your temporary work location or second job and vice-versa are always deductible.
  • Temporary Work Location. Your temporary work location is any place where you are expected to perform your job in a year or less. You can only write off your transportation expenses to your temporary work location if it is not within your metropolitan area, unless you have a regular workplace or place of business.
  • Second Job. You are allowed to deduct your transportation expenses when you get from one workplace to another if you have more than one job and are required to regularly work in more than one place in a day. Whether or not your two or more jobs are for the same employer, your transportation expenses are always deductible. However, you cannot deduct your transportation expenses if you’re coming from your home going to your second job. Remember that you have to go directly from your first job to your second job for your transportation expenses to be deductible. If you go somewhere else after leaving your first job, the amount you spend for your transportation going to that place is nondeductible.

The above-mentioned rules apply when you incur transportation expenses since you have a regular job away from your home. If your main workplace or place of business is your home, do not use the rules for reference.

How to Know if Your Work Location is Temporary

 If your regularly incur commuting expenses because you have more than one regular work location in the same business away from your residence, you can write off the transportation expenses that you incur for your daily round trip between your home and your temporary workplace, regardless of how near or far that workplace is from your home.

In case you are expected to complete your employment at a particular workplace in a year or less, then your employment is considered temporary. Your employment is not considered temporary if your employment at a work location is expected to last for more than a year.

But what if your employment was initially expected to last for less than a year, but due to unavoidable circumstances, you are suddenly expected to work for more than a year?

In that case, your employment will be treated as temporary and same rules on tax deductions apply. If your temporary workplace is not within the general area of your regular workplace and you stay there overnight, then you are considered traveling away from home and the treatment of your transportation expenses depends on the rules under the Traveling Away From Home section of the IRS Publication 463.

 If You Do Not Have a Regular Place of Work

 If you do not have a regular place of work but usually works in the metropolitan area of your residence, you can write off your daily transportation expenses between your home and temporary workplace that goes beyond that metropolitan area. The IRS defines this metropolitan area as the area which covers the area within the city boundaries, as well as the outskirts of the city.

Keep in mind that you cannot write off your daily transportation costs if your temporary workplace is located just within the metropolitan area because these expenses are considered nondeductible.

When You Have Two Places of Work

 Some people have more than one job in a day, and therefore have to go to two work locations in a day. If you are one of them, you are allowed to deduct your transportation expenses when you get from your first work location to the other and vice-versa. That is regardless of whether or not your two jobs are for the same employer.

But what if for some personal reason you fail to go directly from your first work location to the next?

In that case, you are not allowed to deduct your transportation expenses because the rule states that you cannot write off more than the amount it costs you to go directly from your first workplace to the next.

For instance, it’s your day off from your main job and you incur transportation expenses when you go between your home and your part-time job, such costs are considered commuting expenses and are therefore nondeductible.

When You are a Member of the Armed Forces Reserve Unit

 Specific laws are set in place for people who are members of the Armed Forces reserve unit.

Say you have a meeting in that unit. If that meeting is held on a day when you are not off from your main job, then the venue of the meeting is considered as a second place of business and the transportation expenses you incur in getting there from your main workplace are deductible.

However, if the meeting is held on a day when you don’t work at your regular job, your transportation expenses become nondeductible.

The story is different if the place where the meeting is held is temporary and you have more than one regular place of work.

Say you regularly work in a certain metropolitan area but not at any specific location in that area, and the meeting is temporarily held outside that metropolitan. In that case, you are allowed to deduct your travel expenses.

Your transportation expenses also become deductible if your being a reservist requires you to travel more than 100 miles away from your residence. If you travel that distance in connection with your performance as a reservist, you can deduct some of your costs not as itemized deductions but as an adjustment to your gross income.

Commuting Expenses

 Generally, commuting expenses are the transportation costs you incur when you commute from your home to your main place of work and vice-versa. The costs of taking a trolley, bus, taxi or subway between your home and your regular work location are nondeductible since the law sees them as personal commuting expenses.

Regardless of how far your residence is from your regular place of work, you cannot deduct your transportation expenses.

You may ask, what if you still work during the commuting trip?

Performing your job during your commuting trip does not change your commuting expenses from personal to business expenses.

Take this as an example. You use your phone to make business calls while commuting. Or you have your own car and colleague rides with you on your way home. During you travel, you engage in a business discussion. In both cases, your transportation expenses remain personal and nondeductible.

When you commute to and from work, your taxi fare usually is not the only cost covered by your transportation. Take a look at these accompanying commuting expenses:

  • Parking Fees. When you bring your own car to work and pay to park your car at the parking lot of your business location, the parking fee is nondeductible. The only parking fee that is considered deductible is that which you pay for when you visit a client.
  • Advertising Display on Car. Just because you put display material advertising your company does not necessarily mean that your car is for business use, so the expenses you incur for putting such displays on your car are all nondeductible.
  • Car Pools. When you use your car in a nonprofit car pool, you still cannot write off the cost of doing that. You should not include the payments that you receive from your passengers in your income. However, you may do otherwise if you operate a car pool for a profit. In that case, you may include their payments in your income and then deduct your car expenses.
  • Hauling Tools or Instruments. Hauling instruments in your car when you are commuting to and from work does not make your transportation expenses deductible.

 When Your Home Qualifies as a Principal Place of Business

 If you consider the place where you live as your main place of work or business, your daily transportation costs between your home and your other work location are deductible. Take note, however, that the work you do in your home and in the other workplace must be in the same business.

All things considered, it is safe to say that nothing in tax law is straightforward, no matter how easy you may find identifying deductible transportation expenses is.

Meal Expenses: How Much Can You Deduct?

May 28, 2017 Posted by Sanjiv No Comments

Treating your customers and employees occasionally is one of the best ways to build your business. Going the extra mile to make them feel valued goes a long way, although you may not see that now. If you worry about the expenses you may incur taking them out for a meal, you shouldn’t because meals are considered a legitimate business tax deduction. In fact, even your own meals can also be deductible. But of course, there are limits on what you can write off.

Meals become a legitimate tax deduction only in these two situations:

  • You are traveling away from your tax home for your business or job and need to stop to get considerable rest somewhere so you can perform your duties well.
  • The meal is related to your business or job.

If you satisfy either of the two situations, then your meal becomes a deductible expense.

Now let us set aside business-related meals and focus on the first situation. The IRS law states that when you are traveling away from your tax home for work–may that be for your job or business—your meal expenses become deductible. Does that mean that you can eat whatever you want while on duty and completely write everything off? The answer is no.

Actually, there are meals that you can completely write off, while there are meals that are only subject to 50% deductions. You can also not eat too lavish or extravagant meals and expect them to be deductible. In that case, you purchase your meal at your own expense.

Too Lavish or Extravagant Meals

 The law states that meals that are too lavish or extravagant are never deductible. But how do you gauge the lavishness or extravagance of a meal?

Simple. As per the IRS Rule 463, “An expense isn’t considered lavish or extravagant if it is reasonable based on the facts and circumstances.” Just because you conduct business at a high-end restaurant does not necessarily mean that you are being lavish. In fact, the law won’t disallow your meal expenses just because the meal takes place at a deluxe restaurant or hotel.

If you are treating a potential client you are trying to close a deal with, treating him to a sumptuous meal at a high-end restaurant is reasonable enough. However, if you are only conducting a business meeting with your employees to discuss your Christmas party, treating them to a buffet restaurant doesn’t seem reasonable at all. Again, it depends on the facts and circumstances.

Now it’s clear that you cannot deduct expenses for lavish and extravagant meals. However, that is not the only exception. While lavish meals are totally not subject to deductions, some meals are subject to deductions but only to a certain limit.

50% Limit on Meals

 In the law, there exists this 50% limit when it comes to meals and other entertainment expenses. Determining which of your meal expenses are subject to this limit is necessary to know how much you should write off. You use the following methods to figure your meal expenses:

  • Actual Cost.
  • The Standard Meal Allowance.

Notwithstanding the method that you use, remember that you are allowed to deduct only 50% of the unreimbursed cost of your meals. In case you are reimbursed for the cost, how you apply the limit solely depends on the reimbursement plan of your employer. Is it accountable or non-accountable? On the other hand, if you are totally not reimbursed, the limit applies regardless of what the unreimbursed meal expense is for. That means that whether your meal is for business entertainment or business travel, your unreimbursed meal expense is always subject to the limit.

Now let’s go back to the two methods that you can use to figure your meal expenses–the actual cost and the standard meal allowance.

Actual Cost

 This method is less complicated compared with the other method. You simply use the actual cost of your meals to determine the amount of your expense before reimbursing the cost and applying the 50% limit on deductions. If there is one important thing that you should remember when using this method, it’s that you should always keep your records to prove your expenses.

Standard Meal Allowance

 If you do not want to use the actual cost method, you are free to use this method in figuring your expenses for meals.

Generally, this alternative method lets you make use of a set or fixed amount for your daily meals and incidental expenses (M & IE) instead of backing up your actual costs with records, particularly receipts. Well, of course you can still keep receipts for future reference, but you won’t need them as much as you will need them when you use the actual cost method. Under this method, the set amount hugely depends on where and when you travel.

The standard meal allowance method makes mention of a fixed amount for daily meals and incidental expenses. You may probably ask, what are those incidental expenses?

Incidental Expenses

 According to the IRS Publication 463, incidental expenses refer to the fees and tips that you usually give to baggage carriers, porters, hotel staff and the likes. Since they are only incidental, they are not your main expenses. However, these incidental expenses supplement your main expenses.

While these expenses are only considered supplementary expenses, they do not include the money you spend for laundry, lodging, pressing of clothes, mailing cost and telephone or telegram charges.

Incidental-Expenses-Only

 There are days when you do not get to incur any expense for your meals. If that is the case, then you may use the incidental-expenses-only method in determining the amount of deductions you are entitled to. This method is an optional method that you can use instead of the actual cost method if you want to write off your incidental expenses only. When you use this method, you can deduct $5 a day from your expenses if you did not spend anything for your meals.

You should also note that you cannot use the incidental-expenses-only method just whenever you want, or on any day that you apply the standard meal allowance method in determining your deductions. The proration rules for partial days strictly apply to this method. However, it is not subject to the 50% limit on meal deductions.

But how will you know if your meal allowance is subject to the 50% limit? Well, this limit is a bit tricky so you have to learn the ropes.

50% Limit on Meal Deductions

Say you are not reimbursed after applying the standard meal allowance method for your meal expenses, or you used the same method but are reimbursed under a non-accountable plan. In that case, you are allowed to write off only 50% of you standard meal allowance.

This goes the same way if you are reimbursed under an accountable plan and are writing off expenses that are more than your reimbursements. In that case, you are allowed to deduct only 50% of the excess amount.

Are You Allowed to Use the Standard Meal Allowance Method?

 Whether you are an employer or an employee, you are free to use this method. It also doesn’t matter whether you are recompensed for your traveling expenses or not because either way, you can use the same method. But while the law is somewhat lenient when it comes to the use of the standard meal allowance, you should remember that there is also a limit as to where you can use it.

If you are traveling for investment or other income-generating activities, you can use this method in treating your expenses. If you travel for qualifying educational purposes, that is also acceptable. However, if you travel for charitable or medical purposes, you cannot use this method in figuring the cost of your meals.

Is There Any Standard Rate for the Standard Meal Allowance?

 The standard rate for the standard meal allowance is equivalent to the federal M & IE rate. As of 2016, the standard amount for travels in most of the small localities in the United States is set at $51 per day. This rate does not apply to the country’s major cities and localities, which are considered high-cost areas. In their case, higher standard meal allowances apply.

If you want to know the amount of standard meal allowance in the state you are in, you may visit www.gsa.gov/perdiem for the per diem rates of each state for the current fiscal year. You just have to enter the zip code of the city or state that you want to know the per diem rates of through the dropdown menu.

What if You Travel to More Than One Location in a Day?

 If that is the case, then you have to use the applicable rate in the location where you stayed longer to take a rest or sleep. However, the same rule does not apply if you are working in the transportation sector. Workers in the transportation industry are entitled to special rates and are not covered by the mentioned rate for the standard meal allowance.

But how do you know that you are working in the transportation industry? Take a look at these requirements:

  • Your job directly involves transporting goods or people by plane, bus, train, ship, barge or truck.
  • You are regularly required to travel away from your tax home and in one single trip, you become eligible for different standard meal allowance rates.

Once you confirm that you are actually working in the transportation sector, remember that you are allowed to claim a standard meal allowance of $63 a day for your travels. You become entitled to this special rate so that you no longer need to know the standard meal allowance that applies to each and every area where you stop for sleep. When reporting on your income tax return, make sure that you use this special rate for all your travels and not the regular standard meal allowance rates for each state.

When it comes to the federal government’s fiscal year to use, it’s up to you. Once you visit the GSA website to check out the list of the per diem rates of each city or state, you may either choose the rates from the 2016 fiscal year table or the 2017 table to report your travels, which is crucial in determining your income tax return for one fiscal year. However, you have to be consistent. If you use the 2016 table in reporting one travel, then you must use the same table for all the other travels you are reporting.

What if You Travel Outside the U.S.?

 The Department of Defense has assigned locations which can be considered foreign areas and non-foreign areas. The standard meal allowance rates mentioned above do not apply to these areas.

There are special rates that apply to non-foreign areas like Alaska, Hawaii, Puerto Rico, Guam, the Northern Mariana Islands, U.S. Virginia Islands, American Samoa and Wake Island, as well as to non-foreign areas which are geographically located outside the continental U.S.

If you travel to a non-foreign area outside the U.S. and want to know the per diem rate that apply to your travel location, go to www.defensetravel.dod.mil/site/perdiemCalc.cfm. But if your travel location is a foreign area, you must go to www.state.gov/travel/. Under the Foreign Per Diem Rates, click on Travel Per Diem Allowances for Foreign Areas. You will then see the list of per diem rates in the area that you are looking for.

 Whether you are allowed to use the standard meal allowance, entitled to special rates, travel in the U.S. or outside the U.S., it is always critical that you maintain proper records to substantiate all your meals. Always be on the safe side by making sure that you have something to present to back up your expenses once the need for an audit arises in the future.

How Important is Recordkeeping in Claiming Your Deductible Business Expenses?

May 4, 2017 Posted by Sanjiv No Comments

What sets a stress-free business owner apart from a stressed-out one during tax time? Records.

Some may think that records are nothing more than pieces of papers, but when it comes to business taxes, records are everything.

Records are more than just papers. Especially in business, these records are so important because they save you from troubles at the end of the year. Even more so, they save you heaps when it comes to business taxes.

You must know that as a business owner, the IRS allows you to claim tax deductions for whatever legitimate expenses you may have had throughout the year. These tax deductions refer to reductions in your business taxes, and the expenses refer to your business’ current operating costs.

Based on the IRS rule, your legitimate business expenses must both be ordinary and necessary to be deductible. But how will you know if your expenses are ordinary and necessary?

  • Ordinary Expense. If an expense is common and accepted in your trade or field of business, then it is considered an ordinary expense. As per the IRS rule, an expense can only be considered as ordinary if “the transaction which gives rise to it is of common or frequent occurrence in the type of business involved.”
  •  Necessary Expense. If an expense is appropriate for your profession or trade, then it is necessary. Remember that your expense does not necessarily have to be indispensable to be necessary, as per the IRS. For example, you had to spend some money to fix a broken window in your business office. That is considered a necessary expense. However, if you spend money to fix a broken window in your home, that is not a necessary expense.

 When tax time comes, remember that you have to be able to prove these two things so that the IRS can honor your expenditures as necessary and ordinary:

  • That your purpose for the expense is bona fide business.
  • That there is a clear and established relationship between your expense and your profession or business.

It is not enough that there is a business purpose behind your expense. You should be able to show that your money was spent for something that was related to your business. For instance, you are a dealer of cosmetic products. The IRS will certainly not question your membership in a cosmetic industry trade group, but it might question your membership in a travel club since it has nothing to do with your trade.

Keeping Records for Your Business Expenses

 While it is good to know that you can have such deductible expenses, remember that you cannot avail of the privilege if you fail to keep good records. Just as how important it is for you to have deductible expenses, you must be able to prove that your expenses are legitimate enough to be considered deductible.

If you want to reduce your business tax bill and deduct your business expenses, you must be organized and meticulous enough to keep each and every record that can document your expenses. The IRS rule states that “business must maintain records sufficient to substantiate the amounts and purposes of deductions claimed.”

But just how do you particularly substantiate your expenses? Which specific details must you be able to present to the IRS to prove that your business expenses are legitimate?

Well, the details that you need to keep records of largely depend on the type of expense. When it comes to business, the rules of IRS on business tax deductions are divided into four categories– travel, entertainment, transportation and gifts.

How to Prove Your Business Expenses

 If you think recordkeeping is just about keeping receipts, then you might want to think again. When it comes to tax deductions, receipts are good proofs but the law does not consider them sufficient. Depending on the type of business expense that you want to be deductible, you should be able to provide the right and complete details to substantiate your claim for deductions.

Take a look at the following business expenses and the details that you need to keep records of under each type of expense, as per the IRS.

  1. Travel Expenses
  • The cost of each separate expense for travel, lodging and meals
  • Other incidental expenses that may be totaled in reasonable categories, including (but not limited to) taxi fares, fees, and tips
  • The dates when you left for the trip and returned from the trip, as well as the number of days spent solely on business
  • The destination or area of your travel. Here, you should be able to provide the specific name of the city or town where you traveled.
  • The particular business purpose for the expense, or the benefit gained from the business travel

 

  1. Entertainment
  • The cost of each separate expense for entertainment
  • Other incidental expenses that may be totaled on a daily basis, such as taxi fares, telephone charges, etc.
  • The date of entertainment
  • The specific name and address or location of the place of entertainment. If the place of entertainment does not make apparent the type of entertainment, you also need to indicate the type of entertainment
  • The particular business purpose for the expense, or the benefit gained from the entertainment
  • The nature of the business activity or discussion. If the entertainment happened directly before or after a business discussion, you need to indicate the following:
  • The date, place, nature and duration of the business discussion, and
  • The identities of the individuals who took part in both the business discussion and the entertainment activity
  • Information about the recipients or participants in the entertainment activity and their relationship to you. Are they your employees? Clients? Business associates? Information about them may include their names, designations, or titles.
  • It is also important to note that if the entertainment was a business meal, you should be able to prove that you or your employee was present during that particular entertainment activity.
  1. Gifts
  •  The cost of the gift
  • The date when the gift was given
  • A description of the gift
  1. Transportation
  •  The cost of each separate expense. If you used a car for transportation, you should be able to include additional details for your car expenses. These details include the cost of the car and any improvements applied to it, the date you started using it for business purposes, the mileage for every business use, and the total miles for the entire year.
  • The date of the expense. For car expenses, the date when the car was used.
  • Your business destination
  • The business purpose for the expense

 

Now that you know the details that you need for each type of business expense, the next question you may have is where to keep such details. Usually, people think of receipts when the subject is recordkeeping when in fact, receipts are just one of the many records you can keep to back up your deductible expenses.

When is your evidence/proof adequate?

 In the IRS law, there is such thing as adequate evidence. The law honors diaries, statements of expenses, logs, account books, trip sheets and other similar records as pieces of adequate documentary evidence. Documentary evidence cannot be considered adequate if it lacks the previously mentioned elements, such as the amount, place, date and all the other essential character of the expense. However, there are certain cases when the need for adequate evidence does not apply.

  • When other than lodging, your expense is less than $75.
  • When you have a transportation expense but there is no receipt readily available for it
  • When you have lodging or meals while traveling away from home and you account the expense to your employer under an accountable plan, and you are provided a per diem that covers your meals and allowance

In preparing your documentary evidence, you should be able to take note of the following:

  • No need to duplicate information. If your receipt already bears all the important information to prove the legitimacy of the expense, then you do not need to record the same information in your account book or other record books. You won’t have any problem with your records as long as your receipts and records complement each other in an organized manner.
  • Keep timely records. To make your records more valuable, record the elements of your business expense near the time of the expense and support it with documentary evidence. Records have greater value when they are prepared at the time of the expense than later, when there is a tendency for you to not accurately recall the expenses anymore.
  • Prove your business expense. When it comes to proving the business purpose behind the expense, the degree of proof depends on the case. In the event that the purpose of your expense is not clear given the surrounding circumstances, then you have to make a written explanation that clearly states your purpose.
  • No need to disclose confidential information. In providing documentary evidence for your business expenses, you do not necessarily have to disclose confidential information relating to your deductible expenses in your diary or account book. Just make sure that you record the information elsewhere, either at the time of the expense or near the time of the expense.

What if You have Incomplete Records?

 If your records aren’t complete to prove your expense, then you must be able to prove the element of your expense through the following:

  • A written or oral statement you personally made. This statement should contain all the specific details about the element.
  • Other supporting evidence sufficient.

 What if Your Records have been Destroyed?

 There are instances when records get destroyed for reasons that are beyond your control, like fire, flood and other phenomena. In such cases, you cannot possibly produce a receipt. However, since the IRS implements strict policies when it comes to presenting records to prove the legitimacy of business expenses, you need to reconstruct your records or expenses.

 Separating and Combining Expenses

 In recordkeeping, there are cases when you need to separate your expenses or combine your expenses.

  • Separating expenses. Generally, each separate payment must be considered a separate expense. An example would be an entertainment expense for a client you treated to a dinner and then a theatrical show. In that case, the cost of the theater passes and the dinner expense must be taken as two separate expenses and must therefore be recorded separately.
  • Combining expenses. In your record, you can make just one entry for reasonable categories such as telephone calls, taxi fares and other incidental travel costs, but your meals should be in a separate category. Tips for services related to the meal can be combined with the meal expense.

How Long Should You Keep Your Records?

 There is no specific timeframe indicated in the law when you should keep your records. However, if you think that your receipts and records might be needed to administer any of the provisions of the Internal Revenue Code, it is best to keep them for as long as possible. Usually, it is safe to keep your records for a span of 3 years from the time you file your income tax return on which you claimed your deductions.

 How about the Records Provided by your Employees for Reimbursement?

 For records reimbursed for expenses, the rule is different. Once the employees have already handed the records and documentation to their employers and have already been reimbursed, there is generally no need for them to keep copies of the records. Just to be sure, however, it is sometimes better to keep such records because there are instances when employees need to prove their expenses, such as in the following conditions:

  • If you claim deductions for expenses that exceed your reimbursements.
  • If your expenses are reimbursed under a non-accountable plan.
  • If your employer does not utilize sufficient accounting procedures to verify the expense accounts.
  • If you are related to your employer as per the Per Diem and Car Allowances section of IRS Publication 463, chapter 6.

Generally, recordkeeping is not as laborious as it sounds. It’s simply all about giving the IRS what they want so you can save yourself from all the troubles that may arise in the future. You may not know when you will need your records again, so just to be on the safe side, keep them indefinitely. They don’t take up much space in your room anyway.

Dining, Drinking, Merrymaking—Know When Your Entertainment Expenses are Deductible

May 1, 2017 Posted by Sanjiv No Comments

Group Of Friends Enjoying Night Out At Rooftop Bar

Business isn’t always about the dull stuff. In fact entertainment is a part and parcel of most businesses, and the good news is that most entertainment expenses are actually deductible.

In every business, pleasing customers is a must. Especially if you are in sales or marketing, entertaining customers is an essential part of your job or business. Entertainment expenses are usually paired with meal expenses, and both of them are commonly considered legitimate business expenses.

While it is good to know that there’s a clear rule on entertainment deductions, the problem with many business owners is that they think that just about any theater pass, event or meal with a client or a potential client may already qualify as a valid deduction when in fact, it is not always the case.

But how will you know if your entertainment expenses count as business?

 When Do Entertainment Expenses Count as Pleasure or Business?

 Before we get down to the actual rules, let’s try to understand them the easy way. The rules involve figures and stipulations which may sound a bit off for you, but essentially, their bottom line is simply this: When it comes to entertainment expenses, it is usually not considered a deductible expense if you are having too much pleasure. Take a look these easy-to-understand rules:

  1. Make business your priority. Always get down to business. Remember that any form of entertainment that you do must in one way or another be related to the conduct of your business, or must at least be associated with a discussion pertaining to your business. Simply put, if we have a dinner together but don’t discuss business stuff such as sales projections or tax strategies, and instead talk about our children and family life, then you are not supposed to expect the amount we spend for our meal as deductible entertainment expense.

Same thing goes for throwing parties. You cannot simply rationalize that you throw a party to build camaraderie with your clients. For the party costs to be deductible, you should be able to conduct business at any time in the course of the party. It can either be before, after or during the party and may include product demonstration or a brief talk.

Aside from soirees, here are other forms of entertainment expenses that you should consider:

  • If you are a business owner, meals for your employees during a busy time are entirely deductible. It is better if you track such costs under a separate category such as “crew meals,” so your tax professional will not apply the 50% rule during tax time.
  • Do not deduct repeated meals with your business partner when you take turns in paying.
  • You can write off your hotel expenses when attending a trade show, but you cannot do it all year round and mark it as an entertainment expense again and again. So, do not try to write off the amount you spend for entertainment facilities, including property taxes, mortgage interest, swimming pool rentals, tennis courts or a vacation in a resort.
  • You also cannot write off dues that you pay to athletic clubs or hotel clubs, including those that offer free meals when you take part in business discussions.
  1. Make sure that the environment is conductive for the conduct of business. Before writing off your entertainment expenses after dining somewhere, you have to make sure that the environment is business-conducive enough to qualify for a deduction. There was an instance before when the IRS had to reject the deduction of passes to a baseball game because the noise at the ballpark obviously did not allow for a good business discussion.
  2.  Mind your guest list. In writing off your entertainment expenses, you must also take your guest list into consideration. If your event is organized for employees and their spouses or is open to the general public, you may write off its total cost. On the other hand, if the event is for your clients or potential clients, or those business associates or contractors who conduct business with you, then you are allowed to write off only 50% of the total cost. In case your guest list consists of employees and their spouses and some clients, then part of your entertainment cost may be allocated as a 100% write-off, while the remainder can be a 50% write-off based on the number of guests who attended in every category.
  3.  Do not be too lavish or extravagant. Going overboard is a big no-no for the Internal Revenue Service (IRS). If you want to increases the chances of your entertainment expenses to be written off, always choose to keep your entertainment or meal simple by making sure that its cost is aligned with the budget of your company. That means that if your company is not that big to pay for lavish parties, then do not bring your clients to first-class accommodations or parties and expect the cost to be written off.
  4.  Document everything. If you want to win your fight against the IRS, then you have to build up your defenses. There are cases when people from the IRS would come knocking on doors to ask you to back up your claims for deductions. In the event that they come knocking onto your door, you have to make sure that you are prepared to defend your deductions. You do that by making sure that you keep every little piece of evidence that you can keep to support your deduction claims, such as the invitation that makes clear your business purpose, photos of your guests during a product presentation, or a video clip. You may also want your guests to sign a guest book so you can prove to the IRS the right allocation of your entertainment expenses between company employees, business associates, clients, etc. Most importantly, keep all your receipts. Based on the IRS rule, however, expenses that cost less than $75 do not necessarily require receipts. In such cases, a simple journal entry in your appointment book that includes the names of attendees, amount spent and location is enough.

So, when are entertainment expenses deductible?

Basically, entertainment expenses that can be written off are those used to entertain clients or potential clients, customers, business partners, employees, and if these expenses are proven to be–

  • “ordinary and necessary” and
  • either directly related or associated.

As per the IRS rules on entertainment expenses, it is a must that the expenses are ordinary and necessary before they can be written off. That means that they should be common, accepted and appropriate for the business. Entertainment expenses can be considered necessary even without being required. Also, they should be able to meet at least one of these tests:

  • Direct Test. This test involves proving or showing that there was a business purpose to the entertainment and that its main objective was to gain profit. You also must be able to show that it was held in a business setting and that it involved a discussion of the business. If for instance, you gathered your employees somewhere to present employee awards, the amount spent for that event can be considered as deductible expense. However, if you only went fishing with them and there was no clear connection between the activity and your business, that cannot be considered as deductible expense.
  • Associated Test. In this test, you must be able to show that the entertainment was tied to your business and happened directly before or after a business-related discussion. An example of this would be having a business discussion with your clients in the office and then inviting them to a game after your meeting. That will pass the associated test since it happened directly after the business discussion. However, if you took the clients days later, then that will not pass this test.

The following are examples of expenses that are not subject to the 50% limit, which means that they are fully deductible:

  • Those spent for events that promote goodwill to the community.
  • Those spent for events whose proceeds go straight to a charitable organization, provided that the charitable organization is IRS certified.
  • Those spent for meal or entertainment that is essential to the business.
  • Those spent for meals of employees at the convenience of the employer or for any occasional event.

Entertainment Expenses vs Advertising & Promotion Expenses

 In case the nature of your business involves entertaining the general public to advertise or promote, your entertainment cost can be entirely written off as a business expense. If you own a children’s clothing store and you hire a clown to entertain at a community event, that is considered more of a promotion than entertainment.

So how do you write off your entertainment expenses?

As mentioned, you should be able to pass either the direct or associated test and prove your business purpose before you can deduct your business entertainment expenses. Aside from the purpose of your business, you should also be able to prove the following:

  • The amount of each expense
  • The date/time and location of the entertainment, and
  • Your relationship with the persons you entertained (are they your employees, business associates, clients, etc.?)

What if you fail to present a proof?

In that case, the IRS will not be able to consider it as a deductible expense and take it off your tax return. This is where record keeping comes in.

Recordkeeping

 When it comes to business expenses, you should be meticulous enough to keep all the necessary records to prove that your entertainment expenses can pass either the direct test or the associated test. The IRS usually finds contemporaneous records best. These records should be able to specify the business purpose of the entertainment event. A simple note stating your purpose will suffice. For instance, you can note on the bill from your caterer that the amount paid was used for the annual holiday party of your company.

 How much of your entertainment expenses are deductible?

In most cases, only 50% of business-related entertainment expenses are deductible. Depending on whether the entertainment expenses are reimbursed, this 50% limit is applicable to employees or their employers, as well as to self-employed individuals or their clients. The limit particularly applies to the expenses you have while–

  • Traveling away from home for business.
  • Entertaining clients at a place conducive for business.
  • Attending a business conference or meeting.

If you attend an event not related to your business while traveling for business, the amount you spend for that entertainment will not be deductible. The same rule applies if you attend an entertainment event while looking for a possible business location or while investigating a business. The entertainment expense in that case is not deductible since you haven’t started the business yet.

Remember also that any lavish or extravagant entertainment in any form is not deductible. Say you want to entertain your clients by buying a yacht, the IRS will not allow you to write off the amount you spent for buying that yacht simply because that is too extravagant.

 What if you are self-employed and is therefore neither an employee nor an employer?

 Based on the IRS law, entertainment expenses of self-employed individuals are not subject to the 50% limit if all of the conditions below are met:

  • The entertainment expenses are tied to your job as an independent contractor
  • You are provided an allowance or are reimbursed for the entertainment expenses related to the work that you perform, and
  • You are able to show enough proof or records of such expenses for your client or customer.

In every business, treating clients or employees to a meal or entertainment is a great way to build your business, and since it is a legitimate part of the business, it is subject to tax deductions. Knowing which of your entertainment expenses are fully deductible, not deductible or subject to the 50% limit is a must if you don’t wish to deal with troubles with the IRS.

Ten Recordkeeping Rules and Five Bonus Tips in Claiming Travel Expense

Mar 20, 2017 Posted by Sanjiv No Comments

Good recordkeeping may not be in the list of business secrets of successful entrepreneurs. But for the company’s accountant or bookkeeper, it is very important.  It can significantly reduce the amount of profit that a business will pay tax on. Keeping accurate and organized records make it easier for companies to track their cash flow, save time and trouble in filing their tax returns, and perhaps more important, ensure that they are tax-efficient.

Good recordkeeping is particularly vital for business owners and contractors who go on a business trip.  The Internal Revenue Service (IRS) allows business owners to claim tax deductions for travel-related expenses such as:

  • Lodging
  • 50 percent of the costs of meals
  • Baggage charges
  • Air, rail, and bus fare
  • Cleaning and laundry
  • Taxi fare and car rental
  • Computer rental
  • Public stenographer fees
  • Telephone or fax expenses
  • Tips on qualified expenses

If you are a business owner,  you should understand how good record keeping is vital. Keeping accurate records will back up your tax deduction claims. And it can spell the difference between winning an audit and the IRS possibly digging up your other tax returns.

The following are some of the recordkeeping rules you should keep in mind when you are to claim on a business trip:

  1. You can’t claim tax exemptions for estimated or approximated expenses.

The IRS doesn’t allow businesses to deduct amounts based on approximate or estimate. You cannot guess the amount you spent for your gas or toll fees,  neither for the cost of your meals during the business trip.

It is thus recommended for entrepreneurs or their bookkeepers to keep adequate records proving their business trip -related expenses.

You should be accurate on the amount to be written off. The IRS recommends keeping documentary evidence to prove your expenses, such as receipts, bills, and checks.

 However, documentary evidence isn’t required when the travel related expense is lower than $75.  You don’t also have to present receipt for meals and lodging expenses if you are to claim per diem, or you took public transportation for which a receipt isn’t readily available.

 You should keep timely records.

 The IRS also recommends keeping records of a business travel during or near the time of the trip. It should also be supported with sufficient documentary evidence. This can make the record more believable than a statement prepared at a later date.

 Let’s cite an example. A business owner wrote off more than $20,000 in his tax return, citing that the amount represented the gas expenses he had when he went out of town during several occasions in 2013 to meet several prospective clients.

 Two years after the trip, the IRS decided that it had enough grounds to audit his tax returns. In order to substantiate his claim, he presented a 2013 calendar as well as printouts of driving directions generated by an online web mapping service. The directions also specified the distance supposedly traveled by the business owner from his place to the offices of his clients.

 Despite those documents presented , the IRS will still disallow the claims of the business owner.  For one, the documents presented were prepared two years after the business trip. Therefore, there is a lack of truthful recall on the part of the entrepreneur to justify the said claim even though an online mapping service was used.

 This illustrates the importance of keeping timely records of your business trip. While you don’t have to record information as soon as you get home, you don’t have to wait for months to do so, either.

  1. You must state the business purpose of an expense.

The IRS encourages business owners and employees who are claiming a business travel exemption to provide a written statement indicating the purpose of an expense. You can indicate that a conference you attended is for networking and meeting potential clients.  You can back up your claim by showing the conference program or invitation from the organizer.

However, this may not be needed if the purpose of an expense is obvious given the surrounding circumstances.

The easiest example of this would be a sales representative. Given the job description of the worker, it is understood that he or she is constantly travelling.  Thus there is no need to submit a written statement detailing the business purpose of each and every trip. The sales representative would only have to record the date of each trip, total miles covered, and back up his or her claims with documentary evidence like receipt or record of delivery.

You can also withhold confidential information in stating the purpose of a business travel expense.  You don’t have to be explicit in stating the purpose of a business meeting like mentioning the amount of deals you booked over dinner.

  1. You can’t use credit card statements to claim an expense.

One of the more common mistakes that business owners make when writing off a business trip expense is using their credit card statements. The IRS, though, won’t accept this as documentary evidence.

A credit card statement can be likened to a canceled check. It only shows the costs but not any further evidence to prove that the expenses were for a legitimate and necessary business purpose.

You should present a receipt alongside the credit card statement to substantiate the travel expenditure.

  1. You should provide direct and supporting evidence in case you have incomplete records of an expense.

If you cannot provide complete records to support a tax deduction, you can still write off an expense by furnishing direct evidence in the form of a written or oral statement and supporting evidence. The written or oral statement details the cost, time, place, and date of a business trip expense like meals or transportation. It may be a written statement from you, your associates, and guests. Documentary evidence, on the other hand, may be receipts or paid bills.

In the absence of documentary evidence, you can present adequate evidence to prove the character of the expense. In the case of lodging expense, a hotel receipt can be presented to and admitted by the IRS if it provides essential information such as the name and location of the hotel, the dates of the stay, and separate amounts for lodging, meals, and communication expenses.

 Another example of adequate evidence would be a restaurant receipt. It can be presented to the IRS for meal expenses as long as it indicates the name and location of the restaurant, the number of people who were served, and the date and amount of the expense.

6. You should record expenses separately.

The IRS says that each payment is considered a separate expense.

Let’s say that you took a taxi to go to a restaurant where you met a client. The dinner expense and the taxi fare are two separate expenses. You should, thus, record them separately in your records.

It is also common for businessmen to treat their clients to sports events. If you bought season or series tickets, and then used these for business purposes, then each ticket in the series should be treated as a separate item.

You can divide the total cost of the season tickets by the number of games in the series to get the cost of each ticket.

 7. You can combine items if the expenses are of a similar nature.

You can combine expenses of a similar nature, and record them as a single expense. These expenses should have happened during the course of a single event.

For instance, you don’t have to record each and every drink during a cocktail party as separate expenses. You can record the total expenses for the refreshments as a single expense.

 8. You can record all vehicle/transport expenses and then divide them into business and personal expenses at the end of the fiscal year.

You can claim gas expenses if you used your car during a business trip. It is also possible to record all your expenses during the year, and then divide them into business trip and personal expenses at the end of the year.  However, you should keep an accurate mileage log if you are to claim a tax deduction for your business trip related expenses.

The mileage log should indicate the starting mileage on the odometer at the beginning of the year, as well as its ending mileage at the end of the year. Every time you use your vehicle for a business trip, you should record details such as the date of your travel, your starting point, and destination. You must also write the purpose of your trip, the starting and ending mileage of the vehicle, and other trip-related expenses such as tolls and parking fees. It is important to keep your mileage log updated regularly, so that your records will be precise.

 9. You can claim deductions using your actual expenses, or by using the standard mileage rate.

There are two ways of claiming transportation related expenses during a business trip. You can deduct your actual expenses, or use the standard mileage rate set by the IRS.

The latter is easier to follow, which makes it the more popular option among employees and entrepreneurs. For 2017, the mileage rage is 53.5 cents for every mile. You simply have to multiply the miles that your vehicle has accumulated for business-related expenses.

For example, your car drove 20,000 miles for business trips in 2017. You will then multiple 20,000 by 53.5, giving you a total of $10,700. This is the amount that you can write off in your next tax return.

You may opt to deduct your actual expenses instead of using the standard mileage set by the IRS. However, you should have a thorough record of your gas, parking, and toll expenses. You can also deduct other expenses like repair and maintenance, tires, car washing, car repair, and gas and oil replacement. While this method requires a lot of record keeping, it can save you a lot of money because it usually results in a larger tax deduction.

  1. Keep records and receipts as long as you can.

You may wonder how long should you keep those receipts related to a business trip that you had two years ago. The IRS recommends keeping records as long as you can, as there will always be a possibility that your tax return is audited up to three years from the date that you filed it.

Bonus Tips

While entrepreneurs are entitled to many tax deductions when they go on a business trip, they won’t be able to write off expenses if these are not properly recorded. The last thing you want to have is the IRS auditing your tax returns for making unsubstantiated claims. Here are some tips to keep in mind so that you will have an easier time in recording your expenses while on a business trip:

  1. Scribble down notes on receipts. This is particularly helpful if you are to claim meal expenses. You should list down the names of those who you dined with, and the business purpose of the meeting.
  1. Scan receipts. If you’re the type of person who keeps on losing receipts, you can simply scan or take photos of these essential documentary evidences.
  1. Keep track of your expenses in a daily business journal. You can download a good daily business journal that you can use to record all your expenses during a business trip.
  1. Use debit and credit cards as much as possible. Using cash can be disadvantageous for anyone on a business trip. It is easy to spend but hard to keep track of.  Instead of using cash, simply your debit and credit cards, then reconcile them with your receipts.
  1. Use an app. There are many apps that you can use to track your business travel expenses. These apps can make it a lot easier for you to document your expenses and make an accurate tax claim.

How to Get Reimbursed for Tips and Other Incidental Expenses During a Business Trip

Mar 18, 2017 Posted by Sanjiv No Comments

Traveling for business has a lot of perks. It may mean spending some time away from the office and dealing with a lot of tasks as a result, but for the most part,  it can be very rewarding.

You do not have to be a boss to understand how rewarding business trips can be. Business owners and executives, for one, can meet prospective clients and suppliers.  They can seal deals by wining and dining their associates. Or they can strengthen their relationships with current partners.

Employees, meanwhile, can improve on their skills, update their knowledge, and network with peers when they attend conventions and business conferences. Plus, the time away from the office can re-energize them and make them more productive and inspired when they return to their respective work stations.

Claiming tax deductions

What’s more encouraging is that most business-related expenses can be claimed as tax deductible. Anything related to the business trip can be written off, from airfare, taxi fare, lodging, communication charges, and supplies.

Even incidental expenses can be claimed as tax deductible. These are small costs incurred during a business travel. It may cover for tips or fees that an employee or business owner gives to porters, baggage carrier, maids, and stewards.

In short, incidental expenses are gratuities given to staff of restaurants, hotels, cruise ships, and similar establishments.

Tipping Standards

Tipping is a customary practice in the United States. It should be noted that the federal minimum wage of $8 an hour, so tips can help make up for the low pay of servers.

Thus, business travelers will normally have to spend for gratuities extended to waiters, bell boys, porters, and other servers that they will encounter during their trip.

While there’s no standard rate as far as tips in the US are concerned, the following is a guide on how much business travelers tip for people who serve them:

  • Taxi/limousine driver—at least 15 percent of the total fare
  • Porter- $1 per bag
  • Valet parking attendant– $1-2 for every car retrieved
  • Restaurant waiter/waitress- at least 15 percent of the total bill less tax
  • Bell staff- $1 for every bag delivered to a room
  • Buffet service– $1 to $2
  • Bartender/cocktail—at least 10 percent of the total bill

Tipping, however, is not practiced in other countries.  In fact, outside the United States, the practice is not customary.

For instance, tipping in Australia is practically non-existent. This can be attributed to the fact that the minimum wage in Australia is $16 per hour, or around $622 a week.

It’s also not a practice in other countries such as Japan, Argentina, and Estonia. In most countries in Europe, such as France, United Kingdom, the Netherlands and Finland, tips are already included in the bill.

What’s Not Included in Incidental Expenses?

The IRS, however, does not consider the following as incidental expenses:

  • Costs incurred in cleaning and pressing of clothes
  • Long distance telephone calls
  • Local calls
  • Internet connection
  • Fax services
  • Gas for rental vehicles
  • Parking fees

These costs incurred, after all, are reimbursable as other expenses.  For example, costs of cleaning and ironing of clothes can be written off as cleaning expenses. Local and long distance calls, as well as fax and Internet services, may be claimed as communication expenses. Gas for rental vehicles and parking fees, meanwhile, are considered as transportation expenses.

Incidental Expenses-Only

Because incidental expenses are small, it is very common for business owners and employees usually pay out in cash.  The minimal amounts involved in a tip, and the fact that there’s no need to issue a receipt for such expense, has prompted the IRS to set a rule when it comes to claiming incidental expenses during a business trip.

According to the IRS, a business owner or employee who was on a business travel can opt for the incidental-expenses only method in claiming a deduction. In this method, the taxpayer can write off incidental expense of $5 a day.

This method spares taxpayers from the hassle of keeping tabs of the costs they incurred for the tips given during the course of a business trip. Since tips are very small, it can be difficult for business travelers to keep track of the expenses they have incurred.

This method, however, can only be used when the taxpayer did not incur any meal expense.

Thus, a taxpayer cannot claim incidental expenses if he or she had and claimed meal expenses during the business travel.

Let’s cite an example.  Victoria was sent by his boss to a three day business trip to New York.  She incurred meal expenses during that trip.  She could have claimed half of the total amount of those meals under tax rules, but because she could not present the actual costs of the meals,  she just opted to claim a standard meal allowance.

Standard Meal Allowance

For 2016, the federal standard meal allowance is $51 a day.

Thus, Victoria can write off $153 for her meals during that trip. However, because she had claimed meal expenses as tax deductions, then she won’t be allowed to deduct $15 as incidental expenses.

If Victoria didn’t claim any meal expenses, then she can write off the $15 incidental expenses that she incurred during the trip.

By using the standard meal allowance, Victoria has practically claimed both meal and incidental expenses.

Victoria can receive this allowance if her employer does any of the following:

  1. Provides her with lodging, or furnishes it in kind.
  2. Reimburses her for the actual cost of lodging basing on the receipts presented
  3. Pays for the lodging
  4. Expresses reservations about Victoria incurring lodging expenses. This may be due to her having friends or relatives in New York, where she can stay with.
  5. Devise an allowance based on a formula similar to computing Victoria’s compensation like number of hours worked or number of miles traveled.

As mentioned earlier, the M&IE allowance of $51 applies to most small localities in the United States. However, a higher allowance applies to bigger cities like San Francisco, and yes, New York. As of 2017, the M&IE allowance for New York is $74.

There’s also a special standard meal allowance for those working in the transportation industry.  The IRS defines workers in the transportation industry as those who are directly involved in moving goods and people by various modes of transportation such as airplane, bus, barge, ship, or train.

Workers who are regularly required to travel away from their residence, and have to travel to different areas that are qualified for standard meal allowance rates, are also considered to be transportation workers by the IRS.

Those who are in the transportation industry get a standard meal allowance of $64 a day.

Claiming Per Diem

There are instances, though, when claiming the standard meal allowance or using the incidental expenses only method won’t suffice to cover the expenses incurred by a business owner or employee.

For example, what if Victoria had to shell out more than $30 in tips alone during her three-day trip?  She might have brought a lot of bags so that meant she had to give tips to the bellboy and porter. She could have even given the taxi driver a tip for helping her carry her baggage.

One way that Victoria can reimburse those expenses is to claim per diem or per day. Per diem is a daily allowance for expenses that companies give to employees on a daily basis to cover expenses when on a business travel.

Per diem rates cover the costs of lodging, meals, and incidental expenses incurred by an employee during a business trip. If Victoria opts to use this method instead of the incidental expenses only method and the meal and incidental expenses allowance, then she can get reimbursed not just for the tips that she gave but also for her meals and lodging expenses.

Claiming per diem also has one distinct advantage—it spares employees from preparing documentation required to support business travel expenses.  If Victoria opts for this method, then she no longer has to collect every receipt she gets during the trip. There’s also no need for her to note the time, place and purpose of each business meeting she attends. Moreover, she no longer has to hold on to those receipts and other documentation for two to three years, just in case the IRS calls in and questions her business travel deductions.

It can also mean faster reimbursement of expenses on the part of the employee, as there is no need to review and approve monthly expenses reports. It can also prevent processing delays caused by incomplete documentation, or when a supervisor inquires on the reasonableness of a claim.

Simply put, claiming per diem rate simplifies life for employees like Victoria.

However per diem rates aren’t paid to individuals who own more than 10 percent of the business. Thus, business owners cannot opt for this method in claiming tax deductions.

The IRS uses the high-low method in determining the per diem in certain areas in the United States.  Simply put, employees who work in areas like San Francisco, Boston, and Washinton D.C. have a higher per diem rate than those working in areas in the ‘low cost’ list.

For the fiscal year 2017, the IRS has set the per diem rate for high costs areas at $282. The breakdown is $214 for lodging, and $68 for meals and incidental expenses. This applies to all high cost areas within the continental United States.

Some of the high cost areas for 2017 are Los Angeles, San Francisco, Santa Monica, Santa Barbara, and San Jose in California; Denver and Aspen in Colorado, and Sedona in Arizona.

Chicago, Maine, Maryland, and Seaside in Oregon are other high cost areas as defined by the IRS. In Florida, cities like Miami and Fort Lauderdale are classified as high cost areas.

Other areas where the per diem rate is $282 for 2017 are Hershey and Philadalphia in Pennsylvania, Park City in Utah, Seattle in Washington, Jamestown, Middletown, and Newport in Rhode Island, and Virginia Beach and Wallops Island in Virginia.

For all other areas, the per diem rate is $189 with lodging at $132 and meals and incidental expenses at $57.

Compared to the previous year, the rates have gone up by $7 for high cost areas and $4 for the low cost areas.

Employers should take note that lodging and meal and incidental expenses are separated from each other. Thus under certain circumstances, they can only reimburse for the meals and incidental expenses of their employers. For instance, if Victoria’s company paid for her hotel or lodging then she is only entitled to a per diem reimbursement of her meals and incidental expenses.

In such case, she can only receive a reimbursement of $68 for M&EI as the lodging costs have been shouldered by her employer.

Exclusions

It should be noted that transportation costs and mailing costs aren’t included in incidental expenses. These include transportation between places of business and lodging, as well as mailing expenses incurred for filing travel vouchers.

The IRS states that the high-low method must be used by companies in reimbursing their employees’ travel expenses within the continental United States for the fiscal year. However, it is up to them to use permissible method when it comes to reimbursing their employee expenses for business travel outside of the United States.

Employers are also required to continue using this method for an employee in the last three months of the fiscal year.  This means that the same method utilized in the first nine months of the year should also be used for the final three months.

Conclusion

While tips extended to waiters, bellboys, and other servers are not as costly as meals and transportation expenses, the amount can quickly accumulate during a business trip. Fortunately for most employees, the IRS allows these expenses to be reimbursed either through the incidental expenses-only method, per diem, or the meal and incidental expenses method.

A Guide on Business Conventions: Why Professionals Should Take Part in One

Mar 14, 2017 Posted by Sanjiv No Comments

In the age of social media where everyone can share information in a few clicks, some professionals may think they no longer have to attend an industry conference or seminar.

While social media channels, LinkedIn in particular, may have become popular platforms for information sharing and networking, the truth is that it is still a must for professionals to attend conferences, seminars, and meetings.

These events are usually short, typically 2 to 3 days. During that short amount of time, professionals like you can learn from several industry experts. Moreover, you can network with other people in your industry.

There are many reasons why you should attend an industry event, such as:

  1. Learn how industry trends are being implemented. In a typical business convention, top notch speakers and resource persons share the latest trends and how these are being used in your industry. They can enhance your knowledge base, and teach you something valuable that you can apply when you go back to your office.
  1. Meet new suppliers. Most professionals tend to shy away from business conventions because of the salespeople that introduce various industry products and services. But in truth, business conventions and conferences can introduce you to innovative products and services that you or your company may find necessary to stay competitive.
  1. Network with peers. Industry events provide the best platform for professionals to grow their network. They can learn best practices and referrals from competitors, especially those from other regions or countries.
  1. Free travel. For many professionals, their participation in industry events can give them the opportunity to get some much needed rest and relaxation. They can claim travel expenses related to their participation in a business conference or convention, from lodging to transportation to incidental expenses.

There is no shortage of business conventions that professionals can participate in. The following is a discussion of particular fields and some of the more notable meetings, conferences, and exhibits that professionals can join in.

Information Technology

The I.T. Industry is constantly evolving, so it is understandable why there are lots of business conventions held for people and organizations in this field. There are lots of technology conferences held all year round. The good news is that most of these events offer live streaming options, which augurs well for IT professionals who are too busy or those who have exhausted their travel budget.

The Google Cloud Next conference is one of the most highly anticipated events among I.T. professionals. This will take place in San Francisco from March 8-10 this year.  Google Cloud developers will benefit greatly from taking part in this event, what with Google CEO Sundar Pichai and Alphabet chairman Eric Schmidt expected to talk about Google’s initiatives this year.  The conference is expected to draw thousands of participants, who will see what the future of cloud development will be like.

Another highly anticipated business convention in the I.T. industry is the Bluetooth World 2017. This yearly, two-day conference is expected to draw more than 1,000 thought leaders to Santa Clara, California. It will showcase how Bluetooth technology is changing the world, and how the Internet of Things is making life easier for everyone.

Accounting

There are also lots of business conventions that accountants can take part in.  Perhaps the most prestigious of these is the MNCPA Tax Conference held yearly in Minnesota.  This is also one of the longest-running tax conventions in the United States, with its first staging held more than 60 years ago.   CPAs, CPOs, tax practitioners, and financial professionals looking to expand their knowledge of tax-related developments are encouraged to participate in this convention.

The American Institute of CPAs (AICPA) offers more than 60 conferences all year round. These events cover almost every topic there is in the accounting field. Some events are held simultaneously in multiple cities and most conferences can earn continuing professional education (CPE) credits for its participants.

One of the biggest events that the AICPA is holding is its CFO Conference. It will be held in Phoenix, Arizona this year, with hundreds of CFOs, CEOs, investment bankers, attorneys, chief audit executives, and academics expected to join.  The conference will tackle issues such as cybersecurity, strategic planning, risk management, and the current political, tax, and economic landscape in the U.S.

Engineering

Engineers also have tons of options when it comes to business conventions.  Engineering associations are usually at the forefront of these events, providing engineers with the opportunity to hone their skills, earn more certification, and be updated with the latest advancements.

Electrical engineers, for instance, can attend the International Solid-State Circuits Conference organized by the Institute of Electrical and Electronics Engineer. This year’s event held in San Francisco, California tackled developments in the Internet of Everything.

For mechanical engineers, the Mechanical Engineering Congress and Exposition is a prestigious event to take part in.  This is reputed to be the biggest interdisciplinary mechanical engineering convention in the world.  It has been going on for more than a century now, with the first meeting in New York held in 1880. For some historical perspective, this is also the same convention when Willis Carrier presented his concepts on air conditioning back in 1911.

This year’s Mechanical Engineering Congress and Exposition will be held in Tampa, Florida.

Academe

Conferences and education events for members of the academe are designed to provide educators with tried and tested strategies in connecting with students, connect with peers, and bolster their practice.

One of the biggest gatherings of educators in the United States is the International Society for Technology in Education (ISTE) Conference. In 2016, the conference had more than 18,000 participants composed of educators, school leaders, policy makers, tech coordinators, school administrators, and library media specialists. This year, the organizers hope that the event will have more attendees. The event is scheduled to be held in San Antonio, Texas.

The ASCD, meanwhile, organizes its annual conference called Empower. It is designed not just for teachers but also principals, school superintendents, instructional coaches, and central office staffer. This year’s conference scheduled in Anaheim, California has more than 200 sessions on deck.

There are also certain conferences held onboard cruise ships. The International Interdisciplinary Business-Economics Advancement Conference, for example, will be held at the Navigator of the Sea, a five star luxury cruise ship. The cruise will depart from Miami, Florida and stop at the Bahamas and Mexico before returning to Miami.

The conference is expected to attract scholar students, scientists, and researchers who will share their insights on business and economics.

Sales & Marketing

With the Internet changing the way people buy products and avail of services, it is not surprising that many business conventions geared towards professionals in the sales and marketing field are focused on e-commerce.

One event, Brand Innovators Summit, is conducted in multiple cities across the US throughout the year. These summits teach sales and marketing professionals and entrepreneurs how the best brands are using digital media to promote their products and services. Topics range from content marketing, monetization, and enhancing customer experience.

Mozcon Local is similar to the said event as it teaches sales and marketing executives how to use digital media, particularly local marketing and search engine optimization.  Participants will learn tips and tricks for optimizing their websites and make them rank higher on Google.

Adobe, a popular creative product, also holds its own conference. The Adobe Summit is scheduled in March, with participants converging in Las Vegas to learn how to create engaging content viewable across various devices.

Another event that sales and marketing professionals should consider joining is the Social Media Marketing World set sometime this March in San Diego. The event promises to impart some distinctive social media marketing techniques from industry leaders.

Finally, Ragan’s Social Media conference to be held at Disney World will teach attendees when and how to implement various social media techniques. This event will also impart knowledge like building a social media following, strengthening online communities, and tapping key audiences.

 

Healthcare

One of the fastest growing industries in the world, the healthcare sector has hundreds of trade shows and conventions held in various parts of the globe. These conventions are attended by medical professionals, researchers, medical technology suppliers, among others.

Arab Health is one of these events. It is considered to be the biggest healthcare exhibition and medical congress in the Middle East, and the second biggest in the world.

This event attracts more than 4,400 companies that proudly display their latest innovations.  The event aims to promote and improve healthcare services in UAE and nearby territories.

Another event that attracts many healthcare professionals around the world is the Digital Health Summit.  This event, which was most recently held in Las Vegas, tackles the substantial role that technology has in advancing medicine.

The Government Health IT Conference and Exhibition, organized by the Healthcare Information and Management Systems Society (HIMSS), is another big event that attracts thousands of healthcare workers. The event particularly is geared at healthcare IT workers, with the most recent staging focusing on how the new administration will impact the healthcare sector.

Business Leaders and Entrepreneurs

Business leaders and entrepreneurs also have lots of choices as far as business conferences and conventions are concerned.

One of the biggest and most prestigious is the CEO Space Forum, which its organizers have dubbed as a business growth accelerator event.  Participants can learn many things from the event’s resource speakers like traditional funding, strategic planning, leadership, business finance, among others. This year’s gathering will happen in Orlando, Florida and run for five days.

Young professionals, or those who belong to the Millennial generation, are the target participants of the Next Gen Summit.  This event is relatively young, with its first meeting held in 2015. It is backed by partners such as Uber and Verizon.

What’s impressive with this business convention is that it has grown exponentially in the past two years. In 2016, there were more than 500 attendees. More than 10 venture capitals were supported by $1.6 billion in capital.  This year, the organizers hope to bring in a minimum of $3 billion in capital funds.

Aspiring entrepreneurs as well as bosses of start-up businesses should also check out the Start Up Conference 2017.  This is one of the biggest entrepreneur events in Silicon Valley, attracting more than 2,000 businessmen.

As the name suggests, this conference caters mainly to entrepreneurs looking to jumpstart their startup enterprises.  Topics include pitching venture capitals, finding co-founders, promoting a product, and reaching influencers, among others.

Media and Creatives

With social media taking over the world, media practitioners will learn a lot from business conventions. Events like the Print and ePublishing Conference slated this June in Chicago, for example, will teach them how to deliver the best content that’s accessible across all platforms. The BlogHer conference, meanwhile, attracts women bloggers and promotes economic empowerment and education. This conference is open to all bloggers, and provides a good platform for networking.

A similar event is Blogcademy held in multiple cities. This two-day blogging conference and worship teaches participants how to improve their content, so they can earn more from their blogs or websites. It can also teach them how to secure book deals and other publishing agreement.

Web designers, art directors and those in the creative field may also get into courses like Future of Web Design workshop. Scheduled this April in London, said workshop is expected to be participated in by engineers, web developers, and designers.

 

There is no denying that there are a lot of business conferences, seminars, workshops, and similar events that professionals can participate in. These events are all geared towards updating the skills and knowledge of participants, provide a venue for networking, and in some instances, allow attendees to earn continuing education credits.

Professionals should be wise enough to attend these events, as this won’t only help in advancing their career. They can get the chance to travel for free, as they can claim their expenses as deductible in their next tax returns.