You might be surprised at some of the business expenses that are tax-deductible for business travelers. It is important that you keep proper records and receipts. Handwritten notes are also important to keep track of the reason for the expense, name of the person who met with you, the date and location.
There are many people who do not take advantage of all the deductions they are eligible for. Most of the time it is because they are lazy or do not keep proper records. All little extra time and organization can save you a lot of extra money.
If you travel for business and your employer does not reimburse all of your expenses, you are able to deduct any expenses you pay out-of-pocket that exceed 2% of your AGI. If you are the business owner or are self-employed, you do not even have to reach the 2% threshold.
Anything relating to your business is fair game including gasoline, airfare, fees for baggage, lodging, taxis, supplies, meals, and phone calls. You are even allowed to deduct your dry cleaning, laundry service or bar tab while you are traveling. The expenses have to be both necessary and ordinary. That means that they are typical business traveling expenses in your industry and necessary for your business. In other words, you need to prove you are trying to make money on the business trip.
Business travelers need to be aware that the IRS is big on watching business travel-related expenses because they know there is plenty of room for manipulation. They come across many taxpayers that try to group personal expenses with business travel expenses. If you want to make the whole trip tax-deductible, you need to make the primary purpose of the trip for business. You are able to take some personal time.
There is not anything wrong with mixing business with pleasure as long as you make the distinction very clear. Do not try to pass any personal expenses off as business expenses.
Also, make sure that any conferences or conventions you attend are related directly to your profession or trade. The IRS wants to make sure they are really not disguised vacations. Make sure you keep any materials you receive at the convention.
There are many things that you can deduct as a business-related travel expense. If you attend a seminar or conference that lists an optional excursion for meet and greet purposes, you can deduct the expense even if is a balloon ride or trip to a winery. You need to keep the paperwork from the seminar listing the excursion. The trick is to keep meticulous records of all the expenses you incur when you are traveling for business.
If you cannot substantiate your tax deduction you will face serious penalties. In addition to losing the deduction and being required to pay the tax, you will have to pay interest and penalties. When your taxes are recalculated, you could get a 20% penalty for understatement if your taxes were understated by $5,000 or 10%.
It does not stop there. If the IRS finds a discrepancy, they will question what other deductions are personal or bogus. It is hard to get them to stop once they start digging.