What travel expenses are tax deductible?
— -- Rob Newman keeps meticulous records of what he spends on all his business trips. He charges everything on credit cards to have an electronic trail and keeps a log on Google Calendar of everything he did.
As a freelance television commercial producer who travels frequently for work, Newman can't afford not to keep receipts for every taxicab, every meal and every newspaper he buys. When April 17 rolls around, he'll be armed with enough documents to make sure he's getting every tax deduction he's entitled to — and is able to prove why.
"I have not been audited for travel expenses, but am well backed up in case I am," he says.
Newman is not your typical business traveler, tax professionals say. Most taxpayers make one crucial mistake when deducting business travel expenses on their taxes: They don't keep receipts and written or electronic logs to support their claims.
"If you want the deduction, keep the record. If you don't have the records, you're sunk," says Burton Haynes, a tax attorney in Burke, Va.
The deadline for filing 2011 income tax returns is two weeks away, and understanding which business travel expenses you can or can't deduct — and having documents to back them up — can earn you a legitimate write-off or save you in case you're audited.
"Any time these travel, meals and entertainment are audited by the IRS, they're always subjected to a higher level of scrutiny," says Gerald Kelly, a tax attorney in Columbia, Md.
There is much that business travelers can deduct, from meals to dry cleaning to computer rentals to airline baggage fees. But there are many nuances that taxpayers often don't get.
Fortunately, the IRS has many documents, or publications, at www.irs.gov to explain the laws.
When all else fails, business travelers can turn to the professionals.
"The IRS spends a lot of time and money putting together these publications, which do explain things in laymen's terms," Haynes says. "They're written for people."
If you're an employee traveling for business and your company does not reimburse you for all your expenses, you're entitled to deduct your out-of-pocket expenses above 2% of your adjusted gross income. If you're self-employed or a small-business owner, you don't have that limitation.
"For a lot of people, it's very difficult for them to exceed 2% of adjusted gross income for these expenses," says Helen Stephens, a certified financial planner in Fort Worth.
Once you've met that threshold, you can start taking deductions. Air, train or bus fare to your destination is deductible. So is the cab fare to the hotel and to and from business meetings. If you drive a personal vehicle, you can deduct actual expenses or the standard mileage rate. If you rent a car, you can deduct only the business use of the vehicle. The cost of sending baggage or presentation materials ahead of time is also deductible, as are dry cleaning, laundry, telephone calls, tips and other miscellaneous items while away from home.
Spending within reason
You can deduct 50% of your meals, either personal or while entertaining clients, but the meals can't be "lavish" or "extravagant." To complicate matters, there is no clear definition of lavish or extravagant.
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