It’s safe to say business travel has been extremely limited since March of 2020. As restrictions ease, more and more businesses are ready to get back on the road – and that means we’ll start getting more questions about how to write off a business trip and what exactly can be deducted.
What Qualifies as a Business Trip?
- Is it ordinary and necessary? This may seem to be an extremely vague question to ask yourself, but it’s a good first step in determining if your expenses can be deducted. Ultimately, it’s asking if this business trip is typical for your industry. If you’re a salesman needing to travel over 100 miles for a convention, this would be considered an “ordinary” trip. However, taking a personal trip to Bora Bora and making a phone call to a client for a few minutes would not be considered ordinary nor necessary…“Necessary” encompasses anything that is part of a business’s success. The lines can get blurred with this requirement, but ultimately the expense shouldn’t be extravagant or for personal purposes.
- Does the trip take place outside of your tax home? Your tax home is determined by where your regular place of business is located and is not related to your residence. To classify travel as a business expense, your job must require you to be away from the general area of your tax home.
- Does this trip require you to have a substantially longer day “at work”? If you usually work an 8-hour day, a trip that requires you to “work” longer (travel time, time of meetings, etc.), then this would qualify as a business travel deduction. Another way to identify if your expenses can be written off is if you need to sleep to complete your duties while you’re away from your tax home.
What is Included in Travel Expenses?
At North Georgia Tax Solutions, we get this question a lot. We explain it to our clients by recalling the 5 W’s: Who, What, When, Where, and Why. You might have heard of this at some point in your career, but who knew it could be applied to your tax deductions. Here is how they apply and why you should be keeping a record of these things when traveling.
Who: Make sure you record who was at this meeting and/or business trip. For example, if you went to dinner with a potential client while on this business trip, keep your receipt and write down the names of those present at the meeting.
What: What is your business relationship (e.g. potential client/vendor, current client/vendor)? Whether it be information, a sale, or anything else that’s valuable and necessary to the company, it’s important that you can justify your travels with these details.
When: This is a simple one. Make sure the date is recorded somewhere on your receipts for all of your travel expenses.
Where: This is another easy one to complete. Most receipts you receive will record where the purchase took place, which will help in justifying your deduction.
Why: Last, but certainly not least, note why this trip was related to your business. Why is this trip important to your company’s goals and success? This is all important information to record on your receipts and keep to properly justify your business travel expenses.
For a list of travel expenses that can be deducted according to the IRS, click here.
Once you’re back on the road, you will know how to best record and justify your travel expenses. Need a tax expert? North Georgia Tax Solutions would be happy to join forces with your company to determine the best solutions for your unique needs.