Thanks to the Post Tax Cuts and Jobs Act, your travel meals continue to be tax-deductible meals subject to the 50% cut.
The good news is Tax Reform didn’t change your other travel expense deductions.
The beauty of being in business for yourself is the ability to pick your travel destinations while deducting your travel expenses.
For example, you can travel to exotic locations, like Fiji, using the seven-day travel rule and you can attend conventions and seminars in Toad Hop, Indiana. By the way, that is a real place.
If you take your tropical trip to Fiji then attend a convention in Toad Hop, you can understand why the IRS might want to see proof of your business purpose.
You can get deductions for lodging, meals, or other travel expenses. Keep in mind the rules governing receipts (Receipt Bank) and business reasons are the same for corporations, proprietorships, individuals, and employees.
The entity claiming the tax deduction must keep timely records of proof. Pay close attention to the four elements listed below:
- Amount. The amount of each expenditure for traveling away from home, such as the costs of transportation, lodging, and meals.
- Time. Your dates of departure and return, and the number of days on business.
- Place. Your travel destination described by city or town.
- Business purpose. Your business reason for the travel, or the nature of the business benefit derived or expected to be derived.
When in tax-deductible travel status, you need a receipt, a paid bill, or similar documentary evidence to prove every expenditure for lodging and every other expenditure over $75. You DO NOT need to keep track of transportation, there’s no receipt required if there isn’t one readily available.
What would qualify as a receipt? Well, a receipt is a document that establishes the amount, date, place, and essential character of the expenditure.
Let’s look at an example involving what you’d need to state regarding a hotel visit. A hotel receipt is sufficient to support expenditures for business travel if the receipt contains the following:
- The name of the hotel
- The location of the hotel
- The date
- separate amounts for charges such as lodging, meals, and telephone.
Now let’s check out an example involving a restaurant. A restaurant receipt is sufficient to support an expenditure for a business meal if it contains:
- The name and location of the restaurant
- The date and amount of the expenditure
- The number of people served, plus an indication of any charges for an item other than meals and beverages, if such charges were made
Now, I know what you’re thinking and the answer is NO — You can’t use your credit card statement as a receipt. It’s similar to a canceled check in that it proves only that you paid the money, not what you purchased.
To prove the travel expenditure, you need both the receipt (proof of purchase) and the canceled check or credit card statement (proof of payment).
Let’s talk about what exactly a travel expense is. A travel expense is an expense of getting to and from the business destination and an expense of sustaining life while at the business destination. Here are some examples straight from our friends at the IRS:
- Costs of traveling by airplane, train, bus, or car between your home and your overnight business destination
- Costs of traveling by ship (subject to the luxury water travel rules and cruise ship rules)
- Costs of renting a car or taking a taxi, commuter bus, or airport limo from the airport to the hotel and to work destinations, including restaurants for meals
- Costs for baggage and shipping of business items needed at your travel destination
- Costs for lodging and meals (meal costs include tips to waiters and waitresses)
- Costs for dry cleaning and laundry
- Costs for telephone, computer, Internet, fax, and other communication devices needed for business
- Tips to bellmen, maids, skycaps, and others
The travel deduction rules are the same whether you operate your business as a corporation or a proprietorship, with one important exception. When you operate as a corporation during the tax years 2018 through 2025, you must either have the corporation reimburse you for the expense or have the corporation pay the expense.
This is a great example as to why keeping up with receipts and writing down payments is crucial. It will help you with deductions now and forever. So enjoy that trip to Fiji and really enjoy that trip to Frog Hop, Indiana.