It can be tricky trying to figure out what is tax deductible and what isn’t. If you plan a personal trip, there’s no question that you can’t deduct any expenses. The water does get a little murky when you plan a personal trip and conduct a meeting or two with a vendor or prospect while you’re out there. Being able to “kill two birds with one stone” can help your business continue to thrive rather than take a hiatus while you’re on “vacation mode.” How can you know what is considered a deductible business trip expense and what isn’t? 

How To Detect What Is And Isn’t A Deductible Business Trip Expense

A deductible business trip expense is subject to numerous rules that must carefully follow. If you don’t, you run the risk of trouble if you are audited. Though travel expenses are the most common business expense deductions, they are also the most confusing. For an entire trip to be deducted (i.e. flight, lodging, meals, etc.), the primary purpose of the trip must be business. However, you can mix business and little pleasure if you are familiar with the IRS ground rules regarding travel expenses. 

If you are starting a new business or acquiring one, travel expenses in connection with that are not deductible. You can, however, start adding these costs to the startup expenses, elect to deduct a portion, and amortize the rest over a period of 180 months. See how tricky this can be? Your best bet is to consult with a professional regarding your options with any and every potential deductible business trip expense. 

Tips On Travel Expense Management

There are countless tips that we could recommend about travel expenses. One being that in order to be considered a deductible business trip expense, the expense must be necessary, reasonable, and ordinary. Another trip is that you must be “away from home” to be a travel expense. Your travel day can count as business when you travel in a moderately direct route to your destination for business. If your presence is required and requested by someone at a particular event, meeting, or business function; that day can count as a business day. Whoever requested your presence must be business-related. That could be an employee, partner, customer, associate, vendor or client. 

Conclusion 

For example, if you travel on a Friday to meet with a client on Saturday and return on Sunday; your trip is deductible. To find out more about what is or isn’t considered a deductible business trip expense, contact us today to discuss your options. We can collaborate and find your best deductible options today! 

Last year, your chances of an IRS audit were at 2.4 percent. That is if you were to file your business income and expenses as a sole proprietor and reported $100,000 or more in gross receipts.

On the other hand, if you had reported this income as an S corporation, those chances were decreased to 0.2 percent. That’s a 90% decrease which is significant enough to grab anyone’s attention. Now, you’ve probably heard about home-office deductions increasing your IRS audit chances. Before you start believing that to be a bullet-proof theory, take it first as a theory.

Suffer From IRS Audit Paranoia?

If you are easily paranoid about audits, you’ll want to claim the home office deduction without attracting the attention and the possibility of an IRS audit, right? Right. Your home-office deduction will not show on your personal return or your corporate return if you’re operating as a corporation and have the corporation reimburse the office as an employee business expense. There are several ways to deduct your home office expenses but this method maximizes the tax savings.

By doing so, the corporation claims the deduction for the expenses that it reimburses to you. This means that your reimbursement falls under a category like “office expenses” or “utilities”, avoiding the words home office deduction appearing on your corporate return. As a reminder, you don’t report employee-expense reimbursements as taxable income on your personal return.

To continue putting your mind at ease, your home-office deduction doesn’t appear under a home-office label as a tax deduction on the personal or corporate tax returns! You can stop suffering from IRS audit paranoia.

Conclusion

As stated previously, the statement of a home office being an IRS audit flag should be considered a theory. However, if you are still concerned and want that home-office deduction, and for other good reasons, you must consider the corporate form of business, which hides the deduction. At NESCO, we can discuss the best options for your choice of entity. Reach out to us and get started on maximizing your profitability today.