Guest post by Dawn Cook.
Ok, let’s take this Tax Tip post to give more important points on deductible business travel.
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.
Here’s a list of the topics I’ll cover for you in this post:
1. Should you use Per Diem Rates as a deduction option for meals and incidental expenses?
2. Can you deduct the travel expenses of your spouse if they travel with you?
3. Can I get any business travel deductions for a cruise?
Now let’s get into the details:
First topic —> Per Diem Rates
If you’ll recall from my last post, if your trip qualifies as Business Travel, then you can deduct 100% of your transportation expenses, 100% of your lodging, taxis, rental cars, tips and incidentals, and 50% of your meals on “business days”. Per Diem Rates, that government employees are paid, can be used if you are a sole-proprietor, a partnership or an LLC filing as a sole-proprietor for deducting Meals and Incidental Expenses. This is not available for transportation and lodging costs, but actual costs here may be higher anyway.
Per Diem rates are set by the IRS each year and differ per the destination city. You can find the current Per Diem rates for your destination city at www.gsa.gov/perdiem. You can find the per meal and incidentals breakdown of the Per Diem rate at www.gsa.gov/mie for partial days which are your arrival and departure days.
Ok, now I’ll explain the advantage of using Per Diem rates for your meal and incidental expenses.
(Let’s give examples of incidental expenses here – fees and tips to porters, baggage carriers, bellhops and maids.)
First advantage: there are NO record-keeping requirements for the meals and incidental expenses — Now who doesn’t like that one?
Second advantage: the amount of your deduction is based solely on the established rate for the location you are visiting and the number of days you will be there. So what is the advantage here? You can take steps to make your actual costs for meals and incidentals less than the per diem rate deduction you will be allowed. For example, you can book a hotel with a kitchenette and then prepare your own meals which will cost you less than the per diem deduction.
And there’s another option that is very beneficial here – you do not have to make a decision until you get home on which method you will use, actual costs or per diem rates for the trip. You’ll then pick the method that produces the higher business travel expense deduction. See, the IRS does have some common sense for home-based business owners.
Second Topic —> Can you claim your spouse’s expenses if he or she comes with you on your business trip?
There are just three options that each individually could make the answer “yes” and one question the IRS auditor will ask.
Option one – your spouse’s travel is for a bona fide business purpose (he or she can’t just come to be company, that is not a business purpose)
Option two – he or she is an employee or owner of the business (ask your tax professional to be sure these qualifications truly do apply to your situation)
Option three – the travel and related expenses would be deductible business travel (as defined in my last tax tip post on business travel) if he or she was traveling alone
What’s the one question on this topic that the IRS auditor will ask?
Here it is: “Would you have paid for this person’s business travel expenses if you were not related to him or her?”
Your answer must be YES or you can not claim the expenses of your spouse who accompanies you on your business trip.
Third Topic – What about the seminar that takes place on a cruise ship?
(You may not be looking to book your cruise ship trip very soon, but as you build your business with laser focus and superb consistency, that business travel by cruise ship can certainly be in your future plans. So as you make these plans/dreams, you’ll now know what the possible business travel deductions may be available for this up-and-coming cruise!)
Well here we have to start with some bad news, but you’ll be glad to know, there is two other pieces of good news that I’ll discuss next.
First off, expenses for any “business meetings” or “professional seminars” held ON any foreign flag carrier ship are simply not deductible.
(I’m making a guess here, but it would seem a great business opportunity would be to have a US flag carrier cruise ship business, right?)
Now the first way around this non-nondeductible expense rule is if your business involves booking cruise travel for clients then these cruise ship trips would be deductible expenses for purpose of familiarizing yourself with that cruise ship.
Now I also know that many of us are not in the cruise-ship-booking line of work. Therefore, here’s another way that could work for many of us:
The solution here is to have the business seminar take place on-shore rather than on-ship. In that situation then, your cruise just becomes your “means of transportation”. It is true that your choice of transportation or chosen class of service has no effect on the deductibility of the business trip transportation expense. We must be careful though that our choice of service would not be considered “lavish” or “extravagant” considering the specific facts and circumstances. Mainly, we can go First Class, but not go over the top.
There is a significant NOTE to mention here though: You will have to justify the location of the meeting being outside the continental US, but your tax professional can help you decide if the justification is adequate. Please talk to your tax professional before you book your cruise.
Transportation to a business location by cruise ship is considered “luxury water transportation” by the IRS. On a cruise, all expenses, transportation, lodging, meals and incidentals, are combined into an “all inclusive” fare. Therefore, the IRS allows you to deduct 200% of the maximum Per Diem rate authorized anywhere in the continental US at that same time of year to cover all expenses. For example, the Per Diem rate for New York City for November and December 2011 is $367. So you would be able to deduct $734 per day ($376 x 200%) for using a cruise ship as a means of transportation to a business meeting or professional seminar that takes place on-shore.
So there you have it, three more topics that hopefully will help you better understand and take advantage of the business travel deduction rules.
We are still missing, though, one very important topic and that topic is the record-keeping rules that determine, in large part, if the deductions are allowable. So I bet you know what my next tax tip post will be about. So stay tuned and I won’t keep you waiting long.
In the meantime, please share this post with those you know who could benefit by it. I look forward to your comments below as well.
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