Deducting Corporate Travel through Tax Relief Strategies

Deducting Corporate Travel through tax relief strategies

There are numerous different ways you can deduct your travel expenses; these include your annual corporate meeting, travel associated with seminars, business meetings and research just to name a few. First, here’s a few basics. Let’s start with a definition of the word “travel”. You are traveling for I.R.S. purposes when you are away from home, either overnight or for a period of time sufficient to require sleep. So, if you spend the day traveling from Boston to Baltimore, and return home that evening, you were not “traveling” for I.R.S. purposes. Next, we will go into two categories of travel expenses: “transportation” expenses and “on–the–road” expenses. Each of these categories has its own set of rules and regulations. Transportation expenses include such things as the cost of airplanes, trains, ships and buses. “On–the–road” expenses include those things necessary to sustain you while traveling. They include such things as meals, lodging, hair cuts, dry cleaning, snacks and similar expenses. General rule: The tax law allows tax relief deductions for business travel at 100% except for the cost of meals. These are limited to 50% of their cost. Note: No receipts are required for travel expenses under $75 each with one exception: lodging. You must have a receipt for all lodging expenses. With all that said, lets take a look at some more specific types of travel.

Your Annual Meeting

In order to comply with the legal requirements necessary to keep your corporation in good standing, you must have an annual meeting. This meeting is a good opportunity for you (and the other officers of the corporation) to review the events of the last year and do some more updated planning for the year to come. Do you want to take on a new product line? Do you need to refresh or alter your marketing strategy? Will you need additional employees or office space? These types of questions must be addressed and your annual meeting is a good place for it. So here is the fun part: while you are required by law to hold an annual meeting, the place that you hold it is up to you to choose. You can have the meeting anywhere you want, so long as it is reasonable to do so. I have had clients conduct their meetings at ski resorts and beachside hotel rooms in Hawaii. You get to choose where and when you would like for this to take place. And the cost of the trip is a tax relief deduction to your company. This includes the cost of the travel itself; i.e. transportation to and from the place of the meeting. And, subject to the rules above, it also includes such things as taxi and airport transportation, lodging, meals, telephone calls, faxes and tips.

Business Meetings with Colleagues and Customers

Suppose you sell nutritional supplements through your own multi-level marketing company. In the course of building your down-line you are introduced by telephone to someone who is influential in her business community. She recognizes value in the products you are offering and suggests a meeting to discuss affiliate options. After agreeing on the date and time, you fly from Chicago to Atlanta and spend the afternoon of the first day discussing your product line and the cost. The following morning, you agree on a marketing strategy that will allow everyone involved in your company to profit nicely. While driving to the airport in your cab, you notice grand-opening signs for a new Wellness Center and decide to stop in and take a look around. You meet briefly with the owners and promise to forward some detailed information about your products and company by mail. You passed the “overnight” test, so each aspect of this trip is deductible. This includes travel “to and from the airport”, your airfare, your hotel, 50% of your meals, (the topic of making this meal 100% deductible will be covered on a future newsletter) and, your reasonable supplies you used while on the road.

Educational Seminars and Conventions

In a future newsletter, we will cover the fact that educational seminars is a deductible business expense. Note that the topic of the seminar does not even have to be related to the business or company itself. For our purposes here, it is important to note that the cost of traveling to and from those seminars and conventions is also a tax relief deduction. This includes the incidental items that we discussed that are associated with travel.

Other Tax Deductible Trips

Assume for a moment that you have a business as a real estate investor. During the last several years you purchased several multi-family properties and you want to explore investment opportunities in a new city. You could find the names of reputable realtors on the internet and call ahead to schedule appointments to view properties. This trip is a tax relief deductible business trip. Also, trips taken to care for your real estate investments are also a tax relief deduction. The nature of your trip might be to visit the property, meet with the local property manager or perform repairs to the property itself. Another idea comes from a friend of mine who is an artist. One way he likes to work is to photograph the beautiful scenery he encounters while traveling and bring it back to his studio where he reproduces it on canvas. His trips to these various locations are completely deductible (as are his photography and art supplies). Job hunting trips are also a tax relief deduction. So put your resume together and visit prospective employers. It does not matter whether the search is successful or not. The key is to have (or develop) a legitimate business reason to travel. Then apply the pertinent rules and properly document your expenses. Here are some special rules that pertain to combining business and pleasure with travel. 1. If there isn’t a business purpose to the trip, it is not a tax relief deduction, i.e. personal trips may not be deducted. 2. If it is a takes place within the United States, The trip is 100% deductible so long as 50% of the days, including travel days are spent on business. 3. If the trip is outside of the U.S. and it is one week or less in duration – or 75% of days including travel days are spent on business, the trip is completely deductible. If not, you can deduct the cost of transportation in the ratio of business days to total days of the trip (i.e. 80%). 4. If the trip is outside of North America, it must be reasonable for the meeting to be held outside the North American area for it to be tax relief deduction. Special rules that affect the deductibility of the trip based on how many days you travel. 1. Travel days are business days. For non-travel days, you must spend at least one minute working. 2. Saturday and Sunday are counted as business days. So, you can “sandwich” weekends between business meetings, i.e. have a meeting on Friday and Monday and take the weekend off. 3. When you meet with a colleague (i.e. if a realtor meets with a realtor or attorney) it counts as a business day. 4. You can pick any means of travel (i.e. Trains, planes cruise ships, so long as the route you take is reasonably direct. 5. Conventions and seminars are governed by the “Four hour and one-minute rule which requires that you spend at least that much time each day in the seminar for it to be considered a travel day. 6. It you are checking on investment property, you may do so as many times as is reasonable. Special Traveling Bonus: the cost of cutting your hair while traveling and your dry cleaning costs are also a tax relief deduction if done while traveling or within a reasonable time (a few days) after returning!

Remember to Properly Document Your Expenses!

You’ll want to keep the receipts for the transportation associated with your trip and receipt of all lodging costs. You should also have receipts for any other expenditure of $75 or more

Write It Down

It’s always best to use a tax diary or some sort of journal. Record the dates of the trip, its purpose, who you met with, and the associated costs. And keep in mind the special rules that concern mixing business trips with pleasure.

Your Call to Action

Anticipate the next overnight trip you expect to make. How can you turn that trip into a tax relief deduction expense? (i.e. Can you search for employment while traveling, meet with colleagues or attend a seminar?). Also, can you schedule the trip around a weekend so that you can enjoy more free time while you are traveling? In short, think in terms of implementing the tax relief strategies in this article. Sincerely, Drew Miles, The Tax Saving Attorney