Money Management - August 2000

MAPPING OUT YOUR BUSINESS TRAVEL EXPENSES

CAN PUT YOU ON THE ROAD TO A TAX DEDUCTION

Few areas of the tax law include more tax opportunities - and tax traps - than deductions for business travel. Complex rules often leave taxpayers confused and in search of answers and advice. The Nevada Society of CPAs maps out some of the frequently asked questions regarding deductions for business travel.

The actual cost of air, train, or bus fare between your home and your business destination is deductible. (No deduction is allowed if you used frequent-flyer miles to acquire your ticket.) You also can write off the cost of local transportation once you arrive at your business destination.

When you travel away from home primarily for business, 100 percent of the cost of your stay at a hotel, motel, or other lodging is deductible when the nature of the business trip requires an overnight stay in order for you to sleep or properly perform your job. The deduction for business meals, including those taken alone, is generally limited to 50 percent of the amount you pay for food, beverages, taxes, and tips.

When deducting meal costs, you have a choice: (1) you can keep track of and deduct actual costs, or (2) you can use a standard meal allowance set by the IRS. The daily dollar amount of the standard meal allowance, which is determined by the government and adjusted each year for inflation, depends on where you are traveling.

Personal entertainment costs on the trip are not deductible, but business-related expenses such as the cost of dry cleaning and laundering your clothes, business telephone calls and faxes, computer rental fees, and gratuities qualify as deductible business expenses

Airlines and hotels will sometimes provide a substantially discounted rate for a trip that includes a Saturday night stay. When staying over a Saturday night results in a net cost saving, the IRS has ruled that all of your expenses (including lodging and 50 percent of meal costs) are deductible, even if you use your weekend stay for relaxation and sightseeing.

If you decide to tack a few days of vacation on to a business trip, you may still be eligible to deduct 100 percent of your travel fare, provided that you can prove that business was the principal purpose of the trip. An important factor in determining if the trip is primarily business or pleasure is the amount of time spent on each. Keep a log or diary to substantiate all of your business activities. (Special rules apply when you combine business and pleasure on trips outside the United States.) In any case, the cost of lodging and meals is deductible only for the portion of your stay that is business-related.

On the other hand, if you take a vacation or other trip primarily for personal reasons, you may not deduct your travel fare, even if you do some business once you arrive at your destination. You may, however, write off any expenses that are related to business activities once you arrive at your destination. If, for example, while you and your family are vacationing in Florida, you take a customer out to lunch to discuss business, you may deduct your transportation to and from the customer's office and you could also write off 50 percent of the meal cost.

According to tax law, the expenses of a spouse accompanying you on a trip are not deductible, unless he or she is an employee of the business. In addition, the spouse's travel must be for a bona fide business purpose, and the expenses must be otherwise deductible by the spouse. While your spouse's travel fare and meals are not deductible, you may claim a deduction for a shared room at the single-occupancy rate, rather than half the double rate you actually paid.

For each expense, you should record the date, amount, place, business purpose, and business relationship in your recordkeeping system. You need receipts to substantiate your travel and lodging costs. For incidental expenses and for meals, you only need to produce a receipt for expenses of $75.

A thorough understanding of the IRS's ground rules can make it easier to plan your business trips and to combine business with vacation, when possible. If you have additional questions, consult with a CPA.