Ten Recordkeeping Rules and Five Bonus Tips in Claiming Travel Expense

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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.


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.


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.

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.

Deducting Your Trip To India – Detailed Business Expense Guide

Feb 21, 2017 Posted by Sanjiv No Comments

Suppose that you have just arrived from a two week trip to Europe, where you were able to close some deals while visiting some old friends. You’re so happy not only because you were able to snag more business, but you were able to bring home some souvenirs for your family and friends. And of course, you were able to squeeze in some time for relaxation and got to see top sights like the Big Ben and the Eiffel Tower.

But did you know that you can even reduce your next tax bill by declaring your recent trip abroad? Indeed, jet setting can save you a significant amount of money, but only if expenses satisfy certain conditions.

Business Related Travel Expenses are Tax Deductible

According to the Internal Revenue Service (IRS), you can deduct ordinary and necessary expenses for travel away from home or business as long as these are connected with your business or job. This applies to both domestic and international travel.

What are ‘ordinary’ expenses? The IRS defines this as a common or accepted expense in your trade or business. For instance, you can consider the costs associated with distributing promotional literature like newsletters and holiday cards as ordinary expenses.

On the other hand, a necessary expense is defined as something helpful and appropriate for your business or work.  Your business trip, which allowed you to close new deals, can be considered as one.

The IRS says that for travel to be considered deductible, it should be ‘away from home.’ This stipulation is almost always  satisfied for international travel. The IRS will consider  you to be away from home if you are on travel outside your tax home (where you live or work)  for a time longer than a typical day’s work.

Keep in mind, though, that eligible deductions for business travel are only for temporary work on the road. If you spent more than a year on the road for a business travel, then it is considered an indefinite assignment and thus doesn’t qualify you for a tax liability. Even short assignments to the same place during a fiscal year may be considered by the tax authorities as an indefinite assignment.

Eligible Business Travel Tax Deductibles

Now you may ask—what are the travel related costs that you can normally deduct on your tax bill?

Among the travel related costs that you can deduct on your next tax bill are:

  1. It doesn’t matter whether you travel by plain or car; you can normally reduce the expenses related to getting to and from a business destination as long as it is not close to your tax home.

For example, you took a cab to get from the airport to the hotel where you met your client. You can deduct the cab fare as a work-related transportation cost. You can also declare car rentals, and even costs incurred when you took your own car (gasoline expenses, parking and toll fees, for example.) You can even claim the expenses of operating and maintaining a vehicle such as repairs, washing, oil change,  and tire replacement as tax deductibles.

What if your client provided you with a free ticket? Or a friend in London gave you a ride? Obviously, you can’t declare these as deductibles.

But what if you took an ocean liner on your way to London? Can you also deduce the costs on your next tax bill?

The IRS has special rules when it comes to luxury water travel. There is a daily limit on the amount that you can deduct. The amount varies depending on the time of the year. It is typically 200% of the highest federal per diem rate allowable during the time of your travel.

For instance, the highest federal per diem for the period January 1 to March 31 is $428. The daily limit on luxury water travel is double that amount, which is $856.

So let’s say that your total bill for a five-day cruise to London from New York for a business travel conducted in February is $5,000. You can only claim $4,280 as your deductible because you exceeded the daily limit of $856 per day.

  1. Shipping and Baggage. You can also deduct expenses that you incurred for shipping almost anything you need for your business or job while on travel. For instance, the $100 bill that you incurred for sending props or other materials required for a presentation.
  1. You can also deduct the full cost of the hotel room or other accommodations if your trip is overnight. Thus, you can reduce a $7000 per night stay at The Savoy on your next tax bill.
  1. You can deduce up to half of the cost of your meals if you are traveling for business. However, the meals should not be lavish or extravagant. There’s no clear-cut definition for a lavish or extravagant meal, but you can expect to get audited if you claimed a meal consisting of lobster and champagne as a deductible.
  1. You can also deduct any communication-related expenses like phone calls and faxes while you are traveling for business. This also includes international calls.
  1. Cleaning – this includes expenses for washing and ironing your clothes during the trip. Because you have to be presentable during your meetings with clients, right?
  2. Tips— you can also deduct the tips that you handed out to waiters, bellboys, and other workers.

Travel Considered Entirely for Business

The IRS maintains that only foreign travel which is spent solely for business is fully deductible. This means that if you spent your entire stay abroad on business-related activities, then you can claim all your travel expenses as tax deductible.

Since you did go spend time visiting friends and sightseeing during your trip, then you’ll have to allocate between tax deductible business expenses and the non-deductible personal ones.

But let’s face it–you do want to deduct the entire cost of transportation during your entire trip abroad, right?  You can deduce your travel expenses even if you didn’t spend the entire trip on business-related activities if you meet any of these conditions:

  1. You don’t have substantial control. According to the IRS, you don’t have substantial control over your trip if you are not a managing executive, or you are not related to your employer. The IRS defines a managing executive as an employee who has the authority and responsibility to decide on the necessity for business travel.

You also don’t have substantial control if you are merely an employee who was ordered by your boss to go to say, Paris, for a business trip.

But if you’re self-employed, then you might not satisfy this condition at all.  The IRS maintains that self-employed individuals and business owners have substantial control over arranging their business trips.

  1. You were outside the US for less than a week. The IRS will consider your travel entirely for business if you were out of the country for a week or less. However, you will have to count the day you return to the US, and not the day that you left.

This can get a bit confusing if you were traveling to different parts of the US before you left for London. For instance, say your home is in Denver. You left for New York on Tuesday, stayed there for a few days for a series of meeting, before flying to London on Saturday morning.

You had several business meetings in London on Sunday and Monday, then spent the next two days sightseeing. You went back to the US on Thursday before going back to Denver on a Saturday.

Although you were away from your home for more than a week, you were out of the US for less than a week. Remember that the IRS won’t count the day you left your home.

So, you may be able to claim the costs of your stay in London from Saturday and Sunday, but you won’t be able to do so for Tuesday and Wednesday.

  1. You spent less than a quarter of your travel on personal activities. But what if you spent more than a week outside the US? Does this mean that you can’t claim that as business related, and thus make you unqualified for tax deductibles?

You can, as long as you spent less than a quarter of your trip on personal activities.

So let’s say that you spent 14 days in London, and only got to see the sights and visit your friends in 1 to 2 days. You deduct the cost of the round trip plane fare, cost of meals, lodging, and other related expenses as mentioned earlier.

  1. Vacation was not a major consideration in arranging the trip. You can claim deductions on your tax bill if you can prove that a vacation was not a major consideration in arranging the trip.

Tips in Filing Business Travel Expenses

Now that you have an idea which business-related travel expenses you can claim as a tax deductible, here are some tips that you should remember so that you will be able to maximize your savings the next time you file your tax returns:

  1. Keep track of all your receipts and records. You can save a lot of time in looking for receipts when you keep every slip that you get during the course of your travel. You should also write on the back of each slip the location and date, the name of the person that you met, as well as the reason of the expense. This way, you won’t have to scavenge for slips when it is time to file your tax returns.
  1. Document everything. If you’re taking a client to a fancy dinner, you can claim that as a deductible. But you should be able to justify to the IRS that the nature of the meeting warranted such a fancy dinner. Thus it is recommended that you document the business you discussed so that you can justify the claim or pass an audit.

If you attended conferences or meetings while on travel, it would be a good idea to keep the programs or brochures you received. You can also keep the emails sent to you by people whom you met during the business meetings as proof to back up your claim.

Make it a habit to write down the names and business relationship of all the people you met during your travel. Write down their names as well as the business discussed.

You should also know that the IRS does not require receipts for travel expenses less than $75. So if you checked in a hotel for an overnight stay at a discounted price of $70, you’re not obligated to show the actual receipt.

  1. Try apps. If you have too many documents to keep track of, you might want to download and use apps for travel expenses. There are apps such as Tax Tracker that can help you in documenting business and travel expenses.

Mobile apps can monitor your travel expenses, time spent on the road, and miles traveled so you can file taxes and claim deductions quick, easy, and accurately.

  1. Be honest. The best way to avoid a date with the IRS is to be honest about declaring your tax returns. Deduct only the expenses that you are entitled to. Keep all supporting documents just in case you are called for audit. Remember, you not only end up losing deduction but also pay additional tax, interest, and penalties if the tax authorities find out that you make unsubstantiated claims.

Worse, the IRS may subject your tax return to further scrutiny. And you don’t want them to start digging.

The bottom-line is that you can make a lot of exemptions when you travel abroad for business purposes. Now that you know which travel expenses you can deduct, start saving those receipts and recording every expense. You’ll be surprised at the amount that you can save during the tax season.

Claiming Auto Repair Expenses as Tax Credit

Apr 10, 2015 Posted by Sanjiv No Comments

Expenses for car or auto repairs can be considered as tax deductions, subject to certain limitations and rules. Before you start filing your tax return, here are some important points that you should know about.

  • The burden of proof lies on the shoulders of the taxpayer. He has to prove that
  • The car was used for business purposes or, if the taxpayer is an employee, the car was used in the conduct of his job;
  • There was actual damage to the car that rendered it in need of repair;
  • The taxpayer has incurred expenses to have the damage repaired and bring the car back in working condition.

In cases where the car was both for personal and business use, the only amount eligible for tax deductibility would be that which pertains to the business purpose of the vehicle. Therefore, car repairs must be clearly separated or distinguished according to their uses or purposes.

  •  In order to be able to claim deductions for car or auto repairs, the individual must have qualified to do so under the Actual Expense method, as opposed to the Standard Mileage Rate, which does not consider actual cost of repairs and maintenance.
  •  Individuals must keep adequate to complete records of all expenses incurred on the repairs of the car. These include copies of receipts, invoices, and job order documents. File them chronologically, for easier access later on when claiming for the deduction. Note that you will only be allowed to deduct those that are supported by these valid documents.
  •  If the taxpayer is an employee using your car for business purposes, the amount that can be deducted would only be the amount which was not reimbursed by the employer. Record-keeping is also essential. Employees should maintain records of expenses on car repairs. Records of the reimbursements made to them by their employers for said repairs should also be kept. This is so that it will be easier to identify the amount not reimbursed, and can be claimed as deduction from tax later on.
  •  It’s not just repairs for damages that may be considered for tax credit purposes. Even repairs that have to be made in order to pass state laws or regulations, such as emission tests and smog tests, may also be claimed for deduction.
  •  Individuals who have claimed these expenses as tax deductions are also advised to keep these pertinent records for a period of 3 to 5 years, even 7 years, in case post-audit processes call for them.

Of course, it goes without saying that the best option would still be to keep your car in good working condition to avoid the need to have it repaired or undergo overhauls. This will definitely save you the high cost of repairs and maintenance. However, in the event that they are unavoidable, you can still claim them as tax deductions, as long as you have records and proof to show when filing your tax return.

Tax Credit on Car Expenses: Standard Mileage Rate vs. Actual Expenses

Apr 8, 2015 Posted by Sanjiv No Comments

Many people are still confused on what amount to deduct from their tax for expenses incurred on a personal vehicle’s repairs. They are given two options: deducting the actual expenses incurred, or deducting the amount computed by using the standard mileage rate. Which one is better? Which will benefit the taxpayer more?

In order to answer these questions, it would be best to get a clearer understanding of the two methods.

Using Actual Expenses

This is straightforward enough: deduct the amount actually spent or incurred on the operation, repairs and maintenance of a car or vehicle.

There must be a clear indication on which part of the amount was used for personal purposes and which part was for business use.

To come up with the final amount, the following are included in the computation:

  • Expenses on gas, oil and lubricants
  • Toll fees paid
  • Lease payments made
  • License fees
  • Insurance premiums paid
  • Rental and other fees directly related to the car, such as garage rental and parking fees
  • Cost of repairs (includes cost of spare parts and labor)
  • Cost of tires
  • Depreciation

Using the Standard Mileage Rate

Individuals will use a standard mileage rate set by the tax authorities. For tax year 2014, the rate was $0.56 for every mile. Only the miles used for business will be allowed as tax credit. This means that, in this method, the individual must keep track of the miles driven by the car, especially the miles driven for business.

The following are exclusions in this method; meaning, they cannot be claimed as deductions if the individual chooses to use the standard mileage rate, since they are already considered to be part of the rate set forth by the IRS.

  • Fees incurred on registration of vehicle
  • Insurance premiums on the vehicle
  • Fuel and maintenance expenses, including repairs
  • Lease payments on the vehicle, if any

A Comparison

In both cases, there is a need to divide the expenses between personal and business expense. An individual can only claim expenses on cars, including for auto repairs, if they have been used for business purposes.

Compared to the actual expenses method, choosing the standard mileage rate comes with several limitations or restrictions. For example, once it was chosen and clearly stated on the individual’s tax return, it is irrevocable, at least until the following tax year. Any amendments of the return within the year will also have to follow this method, even if the individual wants to switch to using the actual expenses.

Experts recommend that owners of new vehicles go for the standard mileage rate method during the first year that they use their car for business purposes. In the succeeding years, it would be up to the individual whether he wants to switch to using the actual expenses, or stick to the standard mileage rate.

Clearly, the simpler option would be using the actual expenses, provided you have documentation (e.g. receipts, toll tickets) to back it up. It also has the advantage of letting the taxpayer have his expenses for car repairs as a deduction. This method is also more advantageous for those who drive only a few business miles.

When trying to decide which of the two would be better, try performing mock-computations. The one that gives you a greater amount of deduction is surely the better option.


writing off car expenses

Writing Off Car Expenses

Feb 16, 2015 Posted by Sanjiv No Comments

The Six Different Ways of Writing off Car Expenses

Cars are among the most costly items anyone can own but you can use them to reduce your taxes by writing off car expenses.  You can great deal on taxes considering the initial cost of purchasing and expenses incurred due to ongoing maintenance. It is fortunate that there are legitimate ways of offsetting such costs through tax deductions. You may in fact quality for one of these options, which pertain to individual, self-employed, small business or other business deductions. Ignoring such government incentives could exclude a person from enjoying tax savings. You can get complete details about writing off car expenses on the IRS website.

  1. Charitable Contributions

You can consider donating your automobile to charity as opposed to making some profits by disposing it off in used form. Taking this option saves you the trouble of posting an advert along with the rigorous process of negotiating with potential buyers for its sale. If your vehicle is not worth an attractive value, donating this would qualify you for a deduction equivalent to its current market value. A lot of charitable organizations might even pick up the car you donate themselves. This kind of tax deduction could apply to personal as well as business use. As such, it is necessary to ensure obtaining official receipt from the involved charity, inclusive of value of your donated vehicle.  Writing off car expense is a great benefit but doing so without receipt can result in tax penalties in future.

  1. Convert Your Automobile

If you intend to keep your car and are keen on reducing emissions, you may consider investing in an electric drive conversion kit. You may hire it from an auto repair mechanic for installation onto your car or have the professional do it on your behalf. Before purchasing the kit, seek the opinion of a mechanic concerning whether your vehicle is worth undergoing conversion. In certain situations, like of older vehicles with short lifespan, cost of conversion could be an investment that is not worthwhile. Converting a newer vehicle with good shelf-life might earn you tremendous savings on daily fuel usage. Such an exercise could also afford you an individual tax credit of up to $4,000. This form of tax credit that applies to conversions got phased out on December 31, 2011.

  1. Obtain a Hybrid Vehicle

In case you bought a hybrid car either on or prior to January 1, 2011, an individual tax credit is available that directly deducts a certain percentage from the federal tax you owe, dollar for dollar. The credit program has now been phased out however, implying hybrid car you cannot claim purchases done after this date on you taxes. Business enterprises may also fall under this tax deduction as well. This applies to purchases of new hybrid vehicles or even when you have restocked your fleet of business vehicles with hybrid vehicles before the deadline. Hybrid vehicles can prove quite costly to buy, but you the tax reduction offset along with money saved on fuel could turn to be a smart investment.

  1. Fleet Deductions for Small Business

If operating a small business and have a car that is exclusively used for business, this can add to annual tax deductions being part of your operating expenditure. Cost of overhauling a business car does not qualify as a type of deduction, but you may deduct the repair cost. In such case, capitalization cost must include overhauling and be factored into cost of depreciation. It is important to maintain clear records of auto repairs, since the IRS frowns upon simple acts of making claims based upon estimated costs.

  1. Deduct Business Use

A freelance professional or self-employed individual can legitimately deduct cost of business use for even personal cars. This method is ideal for individuals who operate a sole proprietorship, as opposed to legal business structure like a corporation. What matters most here is separating business from personal use. This can be performed through tracking mechanism such as CarCheckup, a small gadget that plugs into the car for business trips. It then uploads mileage details along with related data to the computer once plugged in via USB.

  1. Business Expenses not-reimbursed

Owners of personal cars who have utilized them for business-related matters can claim such expenses as tax deduction. This applies if they are employees who have not been reimbursed by the employer. Such expenses might include costs of maintenance and fueling. Under normal circumstances, their cost is calculated per mile, which is updated on regular basis by the IRS. The key, just as pertains to self-employed tax deductions, is keeping clear records and differentiating between personal and business use.

Unless using the car exclusively for business objectives, one is not permitted to deduct the full cost associated with its purchase, repair and maintenance. It is however advisable to make all deductions allowed. Ensure to attach all the necessary documents required to show support for your claims.

By filing clearly-outlined tax forms indicating itemized individual deductions with the IRS, you may duly claim all of the above tax deductions and incentives. Deductions reduce taxable income resulting in lower next taxes. Depending upon your records, you might end up paying less tax or benefit from larger refund some time later.  Keep a log to help you in writing off car expenses.



car deduction

How to Make Tax Deductions for Cars and Trucks ?

Mar 5, 2015 Posted by Sanjiv No Comments

Cost of operating a truck, car or other kind of automobile is tax-deductible when moving and relocating or driving for medical, business or charity purposes. The deduction made corresponds to the mileage driven for such tax credits. You may opt for standard rate of mileage in place of calculating actual car expenditure for these individual tax credits.

Medical Purpose

Driving in order to obtain medical care for either yourself or your dependents is what Medical Purpose covers. This kind of drive must primarily cater for medical care, as indicated by IRS (Publication 502) and the deduction is reflected on Schedule A and comprises part of medical expenses for an individual.

Business Purpose

Business purpose pertains to driving away from your regular employment location to a different work site in order to meet with client or travelling for a business engagement. Commuting from home to office does not qualify for this category of individual tax credits. This kind of incentive is captured by Schedule C for self-employed individuals, Schedule F for farmers or as itemized deduction that forms part of unreimbursed business expenses provided in Form 2106 for an employee.

Moving and Relocating

You can deduct the driving cost for relocating to a new place of residence as part of moving expense deduction. To qualify for this incentive, it will be necessary to cover a distance of at least 50 miles away from the old home more than what you earlier covered in-between the old home and old job. The deduction is present on Form 3903.

Charitable Purpose

Individual tax credits are available for any vehicle used for providing services to charitable organization. The corresponding deduction is covered by Schedule A as part of charitable donations. It may involve driving for volunteer causes for a charity, church or hospital.

Actual Expenses

Various elements count as truck or car expense including:

  • parking fees and tolls
  • vehicle registration fees
  • interest on loan
  • rental and lease expense
  • vehicle registration fees
  • personal property tax
  • fuel and gasoline
  • insurance
  • depreciation
  • repairs including tires, oil changes and such routine maintenance

However, fines and tickets such as for parking may not be deducted. In addition, expenditure relating to commuting or personal use is not deductible. Various car expenses may also be deducted depending upon why you are driving. One cannot claim interest, insurance and depreciation as well as auto repairs for medical expense and charity deductions.

Standard Mileage Rates

Rather than tally up all actual car expenditures, you may utilize a standard mileage rate to aid in calculating deductions. There are standard mileage rates to achieve this goal. It is multiplied by the mileage drive to establish the dollar amount deductible for car expenses as obtained from Notice 2014-79 of IRS.

Standard Mileage Rates
Type of use Year 2015
Business 57.5 cents per mile
Medical or moving 23 cents per mile
Charitable service 14 cents per mile


In addition to standard mileage rate, taxpayers may also deduct tolls and parking fees as stipulated by the IRS in chapter 4 of Publication 463.

Comparing between Actual Expenses and Standard Mileage Rate

You may use any method that will lead to a larger amount of your tax deduction. This varies with individuals depending upon the number of miles driven, amount of depreciation claimed and other expense variables. Claiming standard mileage rate provides results with less paperwork. It is suited best for situations where the car is driven at times for charity, work or medical appointments and the owner is avoiding lengthy scrutiny of all car-related expenditure.


You will require selecting the standard mileage rate option within the first year of using your automobile for business purposes in order to claim the corresponding deduction. If you start by claiming actual expenses, it will be necessary to retain the actual expense option for the entire time duration of using your vehicle for business. IRS Publication 463 offers further clarity on this situation.

Where to Make Claims for Car and Truck Expenses

Expenses for vehicles get reported on Schedule C for self-employed individuals and Form 2106 for the Employee Business Expenses. In particular, this deduction is miscellaneous itemized deduction that is subject to 2 percent of the adjusted gross income limit. It implies that unreimbursed employee expenses may be deducted, although the tax payer does not benefit from the full deduction dollar-to-dollar on tax returns.

Vehicle expenses get reported on Schedule A for medical vehicle uses, together with other medical expenses.

For charitable car use, the expense gets reported on Schedule A, together with related charitable donations.

Practicing Good Record-Keeping

Ensure keeping a mileage log as it will demonstrate your eligibility for car and truck individual tax credits. This document should show date of each trip made that is tax-deductible. It will be necessary as well to record the total mileage covered for the entire year, which makes it pivotal indicating the odometer reading as each year begins at the first.

Solar Tax Credit

Solar Energy Tax Credits

Mar 6, 2018 Posted by deepak No Comments

Federal Tax Credits of Solar Energy

Tapping the sun to acquire power feels very good. Solar power does not pollute but it reduces the use of fossil fuels and other coal and also reduce the individual carbon footprint. It is also up to five times expensive as electricity that is from natural gas and the other sources.

In order to encourage the Americans to use the solar power, the Department of Energy along with the Environmental Protection Agency run the Energy Star Program which among the other projects also offer the tax credits simply for the solar-powered systems.

Credits for approved solar installations

Installing the alternative energy equipment in one’s home can also qualify them for a credit that can amount to 30% of the total cost. The credit is made available until the end of 2019. The percentage usually steps down every year and then ultimate does so at the end of 2021.

The qualifying equipment also includes the solar-powered units that can generate the heat water or electricity. The credit can be made available for improvements especially when it is to make a residence for the individual. This can also apply to a second residence.

As credit, it is possible to take the amount directly off the tax payment and not make this a deduction from the taxable income. Aside from the cost of the system, there is also no limit to the total dollar amount of the credit.

How to Claim Solar Credits for Rental Property

It is not possible to claim credit simply for installing solar power at the rental properties that the individuals own. The exception is when the taxpayer lives in the house for just some time of the year and also use it as a rental while one is away. When one is needed to reduce the credit for the vacation home, rental and otherwise, also reflect the time that this was not there. If the individual lives there for around three months per year, for example, then the individual can claim 25% from the credit. The system usually costs around $10,000 which is the 30% credit from the $3,000 and can also claim a quarter from that, which is around $750.

Filing Requirements for Solar Credits

When claiming the credit, it is necessary that the individual must file the Form 5695 as well as part of the tax return. This can be calculated on the credit of the form. This is then entered as a result on the 1040.

If the individual ends up with bigger credit than the income tax due, then they cannot use the credit in order to get the money back from Internal Revenue Services. Generally, what they can do is carry the credit over to the following year. Unfortunately, it is not yet clear whether they can carry these unused credits to the years after the solar credit expires.

Residential Renewable Energy Tax Credit

The Consolidated Appropriations Act was signed in December 2015. It also has an expiration date for solar thermal technologies and PV and introduced the gradual step down in the value of the credit for the technologies. The credit that is delegated to the other technologies also expired toward the end of 2016.

Taxpayer can claim the credit of 30% that is considered qualified expenditures for the system that has served as a dwelling unit which is located in the United States. As long as this owned and used as a residence for a taxpayer, then this is what counts. The expenditures in relation to the equipment can also be treated and made the minute the installation of these solar panels are completed and finished. When the installation is set at the new home, then the date that is placed in the service of the occupancy from the homeowner. The expenditures also include the labor costs for every on-site preparation that is in the assembly of the installation of an original system. Preparing and wiring of an interconnected system to a home can also receive deductions from the federal tax.

Solar-Electric Property

  • 30% of the systems have been placed by December 31, 2019
  • 22% of the systems have been placed in service by December 31, 2021 and before January 1, 2022
  • Systems can also be placed in service between January 1, 2006 and December 31, 2021
  • The home that is served by the system does not have to be the principal residence of the taxpayer
  • 26% for the systems that have been placed in the service between December 31, 2019 and Janaury 1, 2021
  • There is also a maximum credit for the systems that is placed in service after 2008

Solar-Water Heating Property

  • 30% for systems have been placed in service by December 31, 2019
  • 22% for the systems have been placed in the service between December 31, 2020 and January 1, 2022
  • Systems are also placed in service between January 1, 2006 and December 31, 2021
  • Half the energy that has been used to heat the dwelling’s water ideally must come from solar and the solar water-heating property expenditures to make it eligible
  • The home is served by the system and it does not have to be the principal residence of the taxpayer
  • The tax credit does not also apply to the solar water heating property for hot tubs or swimming pool
  • Equipment must be certified for performance and pass the SRCC or the Solar Rating Certification Corporation or any comparable entity that has been endorsed by the government of the corresponding state where this property has been installed
  • There is no maximum credit for the systems that have been placed in service after the year 2008.
  • 26% for systems are placed in service that are between December 31, 2019 and January 1, 2021

 Fuel cell property

 The maximum credit is $500 for every half kilowatt

  • The fuel cell can also have a nameplate capacity at least 0.5 kW of electricity that uses an electrochemical process and the electricity-only generation efficiency is more than 30%.
  • The home served by the system must also be the principal residence of the taxpayer
  • If ever it is a joint occupancy, the most maximizing costs that can be taken into account by every occupant is $1,667 for every 0.5 kW. This does not necessarily apply to the married individuals who filed as joint. The credit can also be claimed for every individual that is proportional to the over-all costs that have been paid.
  • Systems must be put in service between January 1, 2006 and December 31, 2016
  • For the systems that have been installed in 2017, these are all considered not eligible

 Small wind-energy property

  • For the systems that have been installed in 2017, these are not eligible
  • Systems can also be placed in service between January 1, 2009 and December 31, 2016
  • There is no maximum credit that is placed for the systems after the year 2008
  • The home served by the system also does not necessarily have to be the principal residence of the taxpayer

Geothermal heat pumps

  • For systems that have been installed in 2017, these are not eligible.
  • Systems must also be placed in service between January 1 2008 and December 31, 2016
  • The home that is served by the system does not necessarily have to be the principal residence of the taxpayer
  • The geothermal heat pump can also meet the Federal Energy Star criteria
  • There is also no maximum credit for the systems that have been placed in service after the year 2008

Significantly, the American Recovery and Reinvestment Act of 2009 also repealed the previous limitation on using the credit for eligible projects that are supported by the “subsidized energy financing.” For projects that have been placed in service after December 31, 2008, then the limitation no longer applies.

Established by the Energy Policy Act of 2005, the FTC or federal tax credit for the reoprty ‘s residential energy initially started to work with solar-electric systems, fuel cells and solar water heating systems. The Energy Improvement and Extension Act of 2008 also extended the tax credit of the small wind-energy systems along with the geothermal heat pumps. This was made effective January 1, 2008. Other key revisions include the eight-year extension of credit until December 31, 2016. The ability to take advantage of the credit and set this alongside the alternative minimum tax. This also includes the removal of the $2,000 credit limit that is targeted solely for the solar-electric systems that started in 2009. The credit has also been further enhanced in February 2009 as conducted by the American Recovery and Reinvestment Act of 2009. This removed the maximum credit amount all on eligible technologies with the exception of fuel cells that have been placed pretty much in service after 2008.

Guide on How to Receive the 30% Credit from Solar Energy

The Solar Tax Credit is the Law that has been extended by legislature in December 2015 and it lets the taxpayer take the 30% credit, as long as it is a qualified expenditure for the solar system. This is considered qualified if it serves as a dwelling unit that is located in the US and is owned and also used as a home by the active taxpayer.

The expenditures in relation to the equipment are made when the installation has been completed. The eligible expenditure also covers the labor costs for preparation made on site, piping and wiring the interconnection of the system to the home and the installation of the original system. In a nutshell, this means that the entire value of the quote from this solar company can install the solar panels that are eligible for the tax credit.

To claim the 30% tax credit from solar energy, individuals must complete the Form 5695 and then add the results to the main tax return.

Here are steps on how to complete the Form 5695:

Form 5695 calculates the tax credits for various qualified residential energy improvements. You just need to worry about Line 1 for solar electricity. Also insert the total cost for the solar panel systems that include the installation listed into Line 1.

Assuming that the taxpayer is not receiving the tax credit for the fuel cells that have been installed on the property, then they do not carry forward the credits that have been accumulated form last year. If this is the case, the value from Line 6 is then put on Line 13.

The next step is to calculate if the taxpayer has enough tax liability to acquire the whole 30% credit that can be received for the year.

The worksheet on Page 4 of Form 5695 must then be calculated to come up with the limit on the tax credits that can be claimed. If they are claiming tax credits for interest on mortgage, buying a plug-in hybrid or electric vehicle, buying the home for the first time or adoption expenses, then there should be more information at hand.

  1. Enter the amount on Line 47 from Form 1040 or Line 45 from Form 1040.
    2. Enter the overall amount, if there are, of the credits from Lines 48 until 51 on Form 1040 and Line 22 on Schedule 4 or Lines 46 to 48 from Form 1040NR.
    3. Enter the amount om Line 40 from Form 5694.
    4. Enter the amount on Line 11 or Line 12 if the individual is claiming child tax credit.
    5. Enter the amount on Line 9 from Form 8396.
    6. Enter the amount on Line 16 from Form 8396.
    7. Enter the amount on Line 3 from Form 8859.
    8. Enter the amount on Line 15 from Form 8910.
    9. Enter the amount on Line 23 from Form 8936.
    10. Add the lines 2 to 9.
    11. Subtract Line 10 from Line 1. Enter the amount on Line 14 from Form 5695 as well. If it is zero or less, then just enter 0 on Lines 14 and 15 of Form 5695.
    12. Enter the result on Line 14 from Form 5695 and then review Lines 13 and 14 and put the smaller one among the two on Line 15.
    13. Add the Lines 6, 11 an 12.

This is hwo you come up with the Federal Tax Credit for Solar Energy.

Why are we still talking about the 2018 Tax Reform Bill?

Feb 15, 2018 Posted by deepak No Comments

Congress has gone on to go against the will of the majority and pushed a tax framework that a multitude of Americans are opposed to. Therefore, it is important to note that there are various leading tax academics, analysts and practitioners that believe various tax games as well as roadblocks and glitches when it comes to the field of tax legislation.

The complex rules have proposed that the Senate and the House bills let the new tax games along with the planning opportunities directed to tax payers who have been advised will lead to consequences and costs that were not anticipated. These costs are not fully shown and reflected at the moment because the official estimates indicate that the bills are now an overall total of $1 trillion to the deficit and will continue in the coming years. There are other proposed changes that are expected to encounter roadblocks and can later on jeopardize the critical elements on legislation. In other words, there are still cases that have technical glitches connected to legislation and are improperly and haphazardly penalized on the benefit of the corporate along with the individual taxpayers.

These are the various problems that the bill can imposed in the respective areas:

* Corporations as Tax Shelters – once the tax rate in the corporate level is reduced because of the absence of anti-abuse measures that are effective, the taxpayers are then able to transform the corporations to a savings vehicle that is tax-sheltered and adept in various strategies.

* Eligibility Games of the Pass-Through – the taxpayers can circumvent the limitations when eligible for the tax treatment that is passed through the businesses.

* Restructuring Local and State Taxes in order to Maintain the Deductibility – by denying the reduction on the local and state taxes, jurisdictions are then incentivized so that it can be restructured to the form that the revenue collection is trying to avoid the change. This results to an undercut of one of the largest raisers of revenue in the entire bill.

* International Games, Roadblocks and Glitches – the complex rules set for the tax reform are meant to make an exemption to the foreign income of the domestic corporations that are derived from the US taxation and is present to various avoidance and tax planning opportunities.

* Money Loophole Machines – the various tax rates that are imposed on the different forms of business income through the years are also invited to come up with the arbitrage strategies whereby the taxpayers are then achieved in an economic benefit that is based solely on the assignment and timing of the income as well as the deductions.

The studies and reports conducted ended with a serious warning. These analysts claim that there will be more problems with the bills. These are likely to emerge. For example, the tax games will eventually reduce the tax revenues and increase the over-all cost of legislation. This results to legislation becoming more regressive than it actually is. In addition, the tax complexities are also necessary so that the policy of new rules can take effect and also prevent the abuses. This ensures that the legislation will also move taxpayers further away from their goals. Before, this was simple, more efficient and more equitable. The IRS and the Treasury may also be overwhelmed when it comes to the efforts in the policy-making of maniputable and new rules especially during a period when funding is reduced and there are constraints in the budget.

Members of the House and the Senate should reassess the process of tax reform as well as the result of the legislative proposals that they create. This is to undertake an approach that is more deliberate and can reach far in terms of legislation. This will definitely affect the economy in a significant behavior which will also benefit the taxpayer.

With that illustration, it shows that the Republican tax-cut bill showers the rich with billions of dollars and not even giving a noticeable boost to the economy. The plan is actually worse than what most Americans think because there are estimates that taxpayers did not even put into account. These are the games, planning and cheating that some of the taxes impose on the bill that was hastily written but quickly encouraged.

In its current form, analysts show that the bill costs more than $1 trillion dollars for the Treasury. This can range to 10 years. A majority of the extra money can also go the wealthiest Americans as well as the most successful and largest multinational corporations.

With this tax reform, instead of the capitalism and unleashing of the productive side, the business planning would be revolving around mining favors from tax code as opposed to creating the economic value. The final legislation can also deliver large benefits to the best advisers than even the current estimates may also suggest. Analyst and the practitioners have also combed through legislation that has been passed by the House and Senate than can uncover the glitches and the loopholes that allow the tax games as well as the aggressive tax planning.

Eventually, the riches 1% of the Americans can hire lawyers and accountants and these people will be busy in mining the bill for potential benefit. Then they also would receive a windfall that averages $48,000 annually.

The US treasure also receives hundreds of billions in revenue. It ratchets the pressure on Congress and also slashes the federal spending on Medicare and Social Security including education and infrastructure.

This new law creates lower tax rates for pass-through businesses and corporations like sole proprietorships and partnerships. It gives individuals large incentives to shift their income as much as possible into the business. The upside to this though is that taxpayers would pay less in taxes.

There is also the proliferation of avoiding the opportunities that leads to the diversion of resources are from productive activity that leads to the tax planning. Instead of unleashing capitalism’s productive side, it unleashes that this side is parasitical. Business planning also revolves the mining favors of the tax code. It creates economic value.

Three Huge Opportunities to Beat the Tax Bill

Individuals and companies must follow these four tax planning opportunities in order to work around the new tax cuts and budgets from the bill.

  1. Using corporations as tax shelters


The conference bill taxes of the C corporations were at 21% in the beginning of the year. This results to tax payers still having the ability to use the corporations and set this on a savings vehicle that is tax preferred. With no protection that comes to the bill, C-corps can then use this to shelter the income from the ordinary income tax rate.


The use of corporations in the form of tax results lead to the labor income taxed at the preferred rate of 21%. This also eliminates the entire second layer of the taxes when the individual revives the dividend and then sells this in the corporate stock form. The incentives of using corporations as tax shelters is reduced under this bill because it is relative to the previous various. This also results to the higher corporate rate. It is from 20% that increases to 21%. The lower top individual rate is also 39.6% that has decreased to 37%. According to reports, these tax savings are regarded as considerable.


The pre-existing safeguards that avoid the consequences are inadequate and can also be in the lighter side of the incentives planning that the rate differential establishes.


  1. Pass through-games

The new bill from the Congress grants a 20% reduction from specific qualified business income. This reduces the tax rate that starts from 37% down to 29.6%. This also provides an incentive for taxpayers to consider their income into the category that is qualified. However, there are complex rules that come with these gaming opportunities. There is also no clear and specific logic to determine who fits into the categories because the game is often played within haphazard lines. As a matter of fact, the conference bill makes the matters more worse. It allows the owners of the firms who earn no wages and specific kinds of property to make the most of the lower rate.


This change also expands the available deduction for the pass-through and greatly encourages businesses to follow the rules and increase the ownership and turn these into qualifying properties. This can also possibly replace the workers in the process.


Service providers can follow the number of steps that qualify to the pass-through deduction. For example, a married employee that has taxable income lower than $315,000 can gain the incentive of being an independent contractor or even a partner, as opposed to being an employee. At the same time, they can still receive the full benefit. Another example is that the higher-income doctors, law partners and other professionals will most likely be able to take part on strategies that access the special rates like buying buildings and also owning these as separate entities.

Another important loophole of the pass-throughs is that they can largely surpass the limits on the expense of the interests. Public corporations can also pass through the subsidiaries and expect these to do the same.


  1. Restructuring State and Local Taxes (SALT) to maintain deductibility

The conference bill caps that the deduction on the SALT amounts to $10,000 and also permits that there is a combination of the taxes required to reach the cap. IN various parts of the country, taxpayers have to pay both the local and the state taxes as well as the excess of $10,000. The states that are affected have the ample incentive of responding creatively to the changes that are in the federal tax law.

Listed under the conference bill, there are three possible responses from the municipalities and the states to restructure the collections of the revenue and to also preserve the SALT deduction.

These strategies rely on replacing the state taxes that are not deducted on the cap with the other taxes along with the sources of revenue like charitable donations, franchise taxes and employer-side payroll.

Taxes imposed on the business can be deducted. States can shift from the non-deductible over the cap state income taxes so that the employer-side payroll taxes remain as such. This new law also permits that there be a shift on the sue of the non-deductibles along with the state income taxes. When this is done, then there is the deductible and charitable contributions for the local and state governments.

As for the franchise taxes, the report also states that the local and state taxes must stay deductible for the pass-through businesses. As long as these are imposed on entities and the individuals.


It is obvious that the tax bill is horribly flawed and also riddled with errors. It must not be assumed that the result is unintentional. The bill does more than its ultimate aims of the Republican gaining leadership in the Congress. It also rewards the wealthy by starving the beasts. This has always been the twin goals of the fiscal policy of the Republicans for decades.

This tax bill also weakens the economy, encourages companies and individuals spend more, and increase the deficit on trade whenever the tax code is complied. The budget can also affect the mortgage rates as well as educational budget after a decade. Taxpayers may be paying less but there is a catch to this. They may not receive the benefits that they expect to get by the time they decide to retire and earn their hard-earned cash that they worked for years to receive.

Almost everything that Republican representatives discuss about the tax bill is a myth. It is not for middle class and it does not pay for itself based on its growth. It does not influence and convince companies to make an investment in America. In other words, it does not make the tax code any simple.