If you or your employees attend conferences or meetings associated with your business, the costs incurred during your travels are at least partially deductible. If you fly to your destination, you can usually deduct the cost of your airplane ticket. You can also deduct the cost of driving to the meeting using the IRS standard mileage rate. However, the Internal Revenue Service generally prefers you travel the cheapest way possible—which means flying in business class or coach, taking the train, or driving.
Travel, meals, and entertainment expenses are allowable deductions (with exceptions and restrictions) under the Internal Revenue Service (IRS) rules for business. The IRS defines travel expenses as ordinary and necessary expenses of traveling away from home for your business, job, or profession. Generally, your “home” for tax purposes is the city or general geographic area where you live. If you have other miscellaneous expenses, such as tips, you can generally deduct them in full as long as they are reasonable and you have a receipt. Other deductible tax expenses include:
You can deduct the cost of transportation between your home and your business destination. If you drive your car, the best method is generally to use the standard mileage rates established by the IRS. You can also deduct the following: taxi fare, commuter bus or airport limo, baggage and shipping, dry cleaning and laundry, tips, and various other expenses such as newspapers if they are germane to your business.
The cost of your hotel or motel can be deducted as part of a travel expense. The exact per diem rates for every state are available online. To ensure you are calculating the rates correctly, you should take a look at the state per diem rates.
You can also deduct the cost of your meals while you are traveling, but only 50 percent of the unreimbursed cost of your meals is allowed by the IRS. You can also use the allowed state per diem rate.
This is an area that is generally a red flag for the IRS. In order to be able to deduct entertainment expenses, the activity has to be necessary for your business to earn income. It also has to take place in a clear business setting, such as a conference room at a convention. It cannot take place in a nightclub, theatre, social gathering, sports event, or cocktail party.
Proving a Business Expense
When you deduct an entertainment expense, you have to be able to prove that a substantial business discussion took place during the activity. Generally, you can only deduct 50% of your entertainment expenses.
It is very important to practice good record-keeping when it comes to travel, meals, and entertainment expenses. Keep your receipts and mileage records in a journal, in your vehicle, or on your smartphone. This category of deductions is often a red flag to the IRS and you may be asked to prove your deductions down to the last dime if you are audited.