As you already know, business travel expense represents one of the most common subjects to tax deduction. Regardless whether you take a cab to another location in the same area or fly to another country, you can claim travel expenses as long as they relate to various business purposes. However, it is important to know that not all travel expenses can be claimed. Thus, it is no wonder that claiming travel expenses is a task that can easily confuse people.
Clarifying Business Travel Expense as Concept
In order to clarify any ambiguities that you might have with regard to business travel expenses, it is important to know that you can deduct only those expenses that are necessary for pursuing an existing business. In order to comprehend everything even better, you should know the followings:
• Lavish and Extravagant Travel Expenses: It is essential to be aware of the fact that you cannot deduct any business travel expenses, which are extravagant or lavish. For example, if you travel from New York to Chicago to visit one of your factories, you can definitely deduct these travel expenses. But, if you then take the plane from Chicago to Paris to visit your relatives and another plane from Paris to New York, you must know that deducting these expenses is not possible. The reason for this is that they are not related to business.
• Reasonable Expenses: It is important to know that if you are a regular employee, who works for example for an accounting company, deducting any travel expenses that relate to first class flights is also quite impossible. The reason for this is that these expenses are actually deducted from tax, which indirectly means that the state covers the costs of your travel. As you can imagine, the state will never accept to cover any costs for first class flights if it can choose to deduct the costs for economy class flights. Therefore, the accounting service that you are working for can only cover the travel expenses that are reasonable considering specific circumstances and facts.
• Play by the IRS Rule: It is essential to comprehend that in some cases, IRS accepts to cover the costs of first class flights. However, it usually requires an additional prove, which should include the fact that the employee is an executive or the economy class was fully booked.
• Existing Business: It is very important to understand that the travel expenses must be connected to an existing business. This thing means that the travel expenses that relate to starting or acquiring new businesses are not deductible. In this case, the accounting services advise their clients to add the costs that relate to starting or acquiring new businesses to start-up business expenses, which can be amortized over 60 months.
Besides these aspects, there are a few more things that you should know about the differences between personal and business travel expenses, combined travel expenses, and claiming such expenses. These details are explained by the following paragraphs.
Personal and Business Travel Expenses: What You Must Know about Them
There are times when the travel has a business and personal character. As you might already know, claiming these travel expenses is quite complicated. In these cases, the IRS allows people to deduct travel expenses only if the trip is considered primarily for business. For example, if you have business meetings in the mornings and evenings for three days and you spend your free time visiting specific tourist attractions, you can definitely deduct your business travel expenses. On the other side, if the travel has a primarily personal nature, you cannot deduct it. For instance, if you have a business meeting for one day but you spend five days in that location, you cannot deduct your travel expenses as business expenses. Additionally, the accounting specialists advise their clients that the travel business expenses outside the US are further limited especially if the trips also have a personal character.
Claiming Business Travel Expenses
In most cases, the business travel expenses only include the expenses that relate to the travel itself. Additional expenses, such as meals and accommodation, must be reported separately. Another important thing that you must know is the fact that regardless of the business type that we are talking about, the tax form requires you to mention only 50 percent of the total amount. This thing indirectly means that you are going to deduct only half of the business travel expenses.
About the Author: This is a guest post by Ricky Palermo, occasional guest blogger on accounting, business, SEO, sports and technology. Ricky is now writing for Crunch about accounting software and the many benefits of online accounting software. It has saved him time and money, and he’s confident that it can do the same for you.