With the ever-changing landscape of taxes, navigating small business tax deductions can feel overwhelming. But when it comes to business travel expenses, there are certain tax breaks you should be aware of to help streamline your filing process and maximize your eligible savings.
This blog post will cover the expenses associated with business trips that may qualify as a deduction so that small business owners can take advantage of their hard work and optimize their annual profit margins.
Here are some important details you need to know before taking your next trip: The threshold for qualifying as traveling away from your tax home or main place of work is if work requires an overnight stay or longer than an ordinary day’s work. All related claims must also satisfy two criteria: they must be necessary and accepted within reason (so no five-star resorts).
Businesses can deduct the cost of travel to and from a temporary assignment, provided it is less than 12 months. Moreover, companies who send employees or owners on trips connected with conventions that benefit their business may take advantage of this deduction, too – remember that special rules apply for those held outside North America.
So, what is a tax home?
Per the IRS, Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual.
If you have more than one place of work, take into account the following when determining which is considered your “main” place of business:
- how much time do you generally spend there
- the scale of business activity at each location
- if one source brings in a significantly higher income than the other
If you need further help to identify your tax home, check out the IRS Publication 463 (2022), Travel, Gift, and Car Expenses.
Now that we have established what qualifies as business travel, let’s look at deductible business expenses. They include:
- Travel by airplane, train, bus or car between your home and your business destination
- Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location
- Shipping of baggage and sample or display material between regular and temporary work locations
- Using a personally owned car for business
- Lodging and meals
- Dry cleaning and laundry
- Business calls and communication
- Tips paid for services related to any of these expenses
- Other similar ordinary and necessary expenses related to the business travel
One quick word about the importance of recordkeeping:
Well-organized tax records are the key to a successful tax season. Keeping good records such as receipts, checks, and other documents can provide the necessary backup for deductions.
Business trips can be a significant cost for any small business owner. Still, taking advantage of the tax deduction regulations that apply can be a great way to save money on travel expenses. By optimizing your return on investments via business trips, you’ll be able to manage your assets better and achieve success in this ever-changing economy. For additional insight regarding business trip deductions, please contact us with any questions.