When the economy took its recent downturn, business travel declined. Although both are back on the rise, keeping track of your expenses is critical — and sometimes a pain. But it doesn’t have to be.
Travel expenses are among the most common small-business tax deductions. They're also one of the biggest audit areas, for businesses big and small. For that reason, it's critical to keep good records of your expenditures. Even better, maintain a log to keep track of all business travel costs. The most important fact to document is the business purpose of the expense.
The rules for these deductions can seem confusing, because there are all sorts of gray areas. As long as you keep the basic IRS guidelines in mind, planning these business expenditures will be a snap.
Here's the most important rule to remember: The expense has to be ordinary and necessary to your business to qualify as deductible.
For instance, a freelancer who works out of his basement and deals with clients only by phone and email will have a hard time justifying a deduction for a three-week trip to Hawaii. On the other hand, that same trip may make total business sense for a sales rep whose territory covers the Hawaiian Islands.
The second most important rule is documentation: If an expense is more than $75, you have to have receipts to back it up.
Travel can be one of the biggest expenses for new and small businesses. From trade shows to conventions to visiting client sites, business owners spend a lot of time on the road. As long as you follow the ground rules (and they're pretty vague), most of the expenses associated with your business travel will be deductible.
Here's a list of commonly deductible travel expenses (full deductibility depends on the actual circumstances): Plane, train, cab and bus fares; half of the cost of your meals (when the trip is long enough to warrant eating out); baggage-handling fees; hotel charges; laundry expenses; phone and fax charges; and reasonable tips.
When your trip combines both business and personal expenses, it isn't fully deductible. If the trip is mainly for business purposes, you can still deduct the cost of getting to and from the destination. If it's mostly personal, none of that expense may be hooked to the business. However, dedicated business expenses, such as a convention entrance fee, still qualify.
In today’s world, you can also turn to a slew of helpful apps. For the iPhone, check out Expenditure, iXpensIt, iWallet, CashTrails and MileBug. For the Android, look at Cashbook, Droid Wallet, Expense Manager, EasyMoney and Expensify. The top Blackberry expense tracker apps are Tax Receipts Shoebox, PorOnGo Expense with Receipt Reader, Expensify Expense Report and Expense Log Pro.
Tracking expenses doesn’t have to be as time consuming as it used to be, and with smartphone technology, you no longer have to fill your pockets with paper to satisfy your accountant.
Billie Ruff is owner of Travel Cafe. Contact her at travelcafeonline.com.