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Wednesday, Nov 29, 2023

Tax Strategies for Reducing Business Travel Expenses

Have you been fantasizing about exotic destinations lately during your commute to the office? You’re not alone.

The possibility of taking a lengthy summer vacation is unfortunately becoming less common for those of us who work in corporate America.

However, don’t dismiss those dreams of plane tickets and hotel reservations just yet. With some creative scheduling, you can turn your next business trip into a family vacation, or you can extend your business trip for a few days of relaxation while garnering deductions for various travel-related business expenses.

Business travel expenses include the cost of transportation, lodging, meals and entertainment , which are 50 percent deductible , provided these costs are not lavish or extravagant.

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The IRS has neither defined nor provided examples of lavish or extravagant expenses, but it has stated an expense will not be considered lavish or extravagant merely because it involves first-class accommodations or services.

Even if the trip is brief, it is wise to keep track of miscellaneous travel-related expenses, such as parking, taxis, laundry expenses, phone charges and tips. The total of these expenses can be significant, and they are all tax deductible.

– Ways To Calculate

Deductible Expenses

The deductible portion of business travel expenses is generally determined by using an allocation made on a day-by-day basis which compares the number of “business days” with “non-business days.” Total deductible expenses are calculated by multiplying total travel expenses by the ratio of business days to total trip days.

This rule does not apply to travel away from home which does not exceed one week nor does it apply to trips exceeding one week if the personal or vacation time amounts to less than 25 percent of the total time on the trip. In the case of these two exceptions, all travel expenses are deductible.

With some careful planning, being accompanied by your spouse or family may only slightly increase the cost of your business trip. Although airfare for an additional person accompanying you for non-business reasons is not deductible, lodging costs are deductible.

It’s advantageous to stay in hotels that offer double rooms for slightly more than the rate of a single room, as opposed to hotels that offer double rooms for twice the rate of a single room. The smaller the difference between the rate for a double and a single room would mean less incurred for a non-deductible personal expense.

Another possible strategy would be to drive to your destination rather than flying. The full cost of your transportation would be deductible despite having additional persons riding with you. If you do need to fly, your prior frequent flier business miles could be used for your spouse or family’s airfare.

– Understand Limits

Before Embarking

It’s important to understand the various limitations on travel deductions before planning your next business trip.

Businesses that reimburse employees for travel expenses and self-employed persons can deduct the full cost of business travel subject to the limitations mentioned above.

Employees must deduct unreimbursed business expenses as miscellaneous expenses, the total of which is deductible to the extent it exceeds 2 percent of their adjusted gross income, assuming the individual is eligible to itemize deductions on Schedule A of his or her personal tax return.

If you are fortunate enough to mix travel with business and pleasure this summer, some timely planning can stretch your dollars as well as your pleasure.

Harris is a senior tax accountant with the San Diego accounting firm of Turnquist, Schmitt, Kitrosser and McMahon.


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