Guest post by Dawn Cook.
Ok, now today’s tax tip (the last on my series of business travel tax tips) is on the clincher to make all these business travel expenses deductible, and that clincher is accurate record-keeping.
The rules for business travel record-keeping are very specific and strict. Don’t panic though. This can be easy as long as you know specifically what to include and make it a habit to do it. Keep reading and you’ll learn both right here!
But first, I have to start with my disclaimer: These tax tips are based only on US tax law and as I am no longer a practicing tax professional, I insist that you consult a professional tax adviser before you begin to utilize the steps I have included here in this post. Especially for my great world-wide readers, consult your tax adviser to learn if my tips here apply in some form in your country and/or state.
The Specifics of Record-Keeping for Business Trips:
Your record-keeping for business travel expenses must include the answers to five questions posed by the IRS.
Here’s the 5 questions:
1. What was the money spent on? List each expense by name, plane tickets, taxi fares, meals (list separately), tips, registration fees, etc. (I’m sure I’ve missed some category examples so don’t think this is everything.)
2. When did you spend it? Dates and times of departure and return as well as date of each expenditure.
3. Where did you spend it? City you flew to, name of restaurant, start and end place for each taxi ride, name of hotel, who you gave tips too like “bellman”, “taxi driver” and “maid”. (You don’t need their given name for your records, but being a friendly relationship-builder, you may have that too, right?)
4. Why did you spend it? List the business purpose for the trip as whole and the business reason for each expenditure. The IRS is still the IRS, meaning not everything is automatically deductible. As we should have guessed, movie rentals and in-room mini-bar purchases are not deductible so do not go overboard here. We all really know what is for a true business purpose and what is not so use your common sense here.
5. Can you prove YOU paid your bills? Here you will need copies of paid receipts for hotel stays, transportation expenses (other than local transportation like taxi fare), conference fees and any individual expenditure over $75. Just get into the habit of always asking for a receipt from everyone. It is your right to receive one as a consumer. (Another tip here – ink on thermal paper receipts will eventually fade completely so it is best to photocopy these receipts once you are home so you retain your proof of payment.)
Answering these five questions is your documentation and it must be done within 24 hours of when you spent the money. The IRS can be very serious about this so make meeting this requirement a good habit you keep. Once you’re in the habit, it won’t be a chore at all; just part of your routine.
Here’s 5 Steps to make this record-keeping into a simple habit:
1. Carry a small spiral notebook with a paper-clip on the back cover or a notebook that includes an attached zipper pocket with you. Don’t forget the pen or two as well.
2. Every time you spend any money on anything (even on a non-deductible item, again we are developing a habit here), record it in your notebook using the 5 questions above, and save the receipt in zipper pocket or paperclip to the notebook.
3. Each evening (remember the 24 hour rule), review your notebook and be sure you have included answers to all 5 questions in legible hand-writing. Spend the time now to write any notes on receipts to remind you exactly what each receipt is for and the business purpose since it may be hard to remember later.
4. Put that day’s receipts organized in a safe place, like your suitcase or briefcase.
5. Once you are home, record the data into your tax deduction tracking system, whether its into an MS Excel spreadsheet or into a tax deduction software program. Then, of course, file the receipts into your organized tax filing records. (Don’t forget to copy the thermal paper receipts.)
These steps are a required part of taking trips that can become tax deductible business travel. Don’t think of this as a chore since it allows the tax savings you will receive when you deduct those expenses on your tax return. The payoff is well worth the time and effort. This also what every successful home-based business owner does to take full responsibility for their tax situation and therefore, pay the least amount in taxes as allowed by law.
Well, I hope you have been educated a bit during this series of tax posts on business travel. These business travel deductions are one of the advantages of being in business for yourself so don’t miss out. Plan your next trip accordingly and take the recommended action steps and you’ll enjoy your trip even more knowing the reduction in taxes you will receive on your income tax return.
As usual, I look forward to all your great comments below!
Committed to Your Success!
DISCLAIMER: Dawn Cook is not a tax professional or tax attorney. Therefore you must consult with a tax professional before implementing any tax strategy.
See all the posts in this mini-series:
- Taxes – You Must Be Your Own Expert Whether You Like It or Not!
- Tax Tip – How to Use Your Business Expenses to Increase Your W-2 Paycheck
- Tax Tip – How to Save Taxes by Hiring Your Kids
- Tax Tip – How to Make your Trips Qualify as Deductible Business Trips
- Tax Tip – Business Travel – Make It Deductible with Accurate Record-Keeping!
- Tax Tip – More on Deductible Business Travel