If you’re a business traveler, it’s in your best interests to understand what the IRS allows as business travel deductions. Be sure to read Developing a Travel Policy if your business has yet to institute policies around business travel.
In order to prorate your business expenses and to claim those the IRS allows, it’s first necessary to differentiate between business and non-business activities. While on a business trip, if you engage in non-business-related activities, the IRS does not require you to prorate transportation costs incurred to and from your main destination. However, this does not include any extra, non-business-related days spent at the destination.
Business trips made to tradeshows and conferences may be listed as deductions; however, they must benefit your business, and the convention, conference, or seminar must last a minimum of six hours daily. You’re also required to attend a minimum of two-thirds of the program. Keep copies of your registration forms and the receipt in order to document your attendance and to confirm payment.
By engaging in some business while on vacation, you can deduct a portion of your vacation costs as a business travel expense. If the main purpose of the trip isn’t business, you cannot deduct the cost of travel to and from the location; however, you can deduct hotel and rental car costs for those days you also visit a client, attend a conference, or engage in any activity meant to advance your career.
The best way to maximize your business travel expenditures is to keep a diary of all expenses and carefully maintain backup documentation, including sales receipts when possible. When you attend meetings on your business trip, send a letter to confirm your meeting and retain any letter you receive in reply. This provides you with documentation that travel to and from the location was a business expense.
Along with the more obvious business travel expenses such as lodging, meals, and the purchase of business-related supplies, you can also deduct details, such as dry cleaning, necessary sundry items, tips for services rendered, and business telephone calls. Keeping close track of mileage for all business-related activities during the trip is also important, as you can deduct according to the IRS standard mileage rates. (For 2007, the standard mileage rate for the cost of operating your car for business use is 48½ cents per mile.)
You can also deduct parking and toll fees incurred during your business travel. If your travel is conducted in your own car, you can also claim depreciation based on the fraction of time you use the automobile for business purposes. To determine this amount allowed, you use an annual allowable depreciation dollar amount and then subtract the percentage that was for personal use.
Typically, without a diary or other daily account of your expenses — whether on a Blackberry or handwritten — you’ll likely neglect a significant portion of your deductible business travel expenses when filling out your expense report. Literally millions of dollars annually could remain in the hands of business travelers if only they maintained better records and adequate backup documentation.
Be sure to check out Twelve Tips for Preventing Tax Audits for some helpful advice.