Many business owners misunderstand the importance and value of tracking all their expenses. This year, when a Liberty Tax tax preparer in North Carolina started a business owner’s tax return, she discovered the client had not counted certain expenses because he thought they seemed “too frivolous.” After all was said and done, this client ended up with an extra $3,700 in business expenses.
So let’s talk about what business expenses you may have let fall through the cracks. When you think of top tax deductions, what first comes to mind? Automobile expenses? Payroll? Company supplies? All pretty obvious. But what is less obvious are expenses related to things like hotel stays, fine dining, and convention attendance.
According to IRS Publication 17, you can deduct all of your travel expenses if your trip was entirely business related. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. However, there are certain rules that apply when business owners extend their stay or combine personal activities with business ones. Keep, and make notes on, all your receipts so that you can easily allocate the expenses to the proper activity.
If networking is your thing, Chapter 26 of Publication 17 gives a whole new meaning to conventional wisdom. You can deduct your travel expenses when you attend a convention, if you can show that your attendance benefits your trade or business.
The IRS states that you can show how your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. If the conference agenda is related to your position, that’s enough to establish that your attendance was for business purposes.
Publication 463 is a tax preparer’s go-to resource when assisting a client with travel-related business expenses. You could claim the following as business expenses that aren’t at all frivolous:
•Taxi, commuter bus, and airport limousine
•Baggage and shipping
•Car (travel tolls, parking, and maintenance)
•Lodging and meals
Keep in mind that expenses aren’t necessarily counted dollar for dollar. Your tax preparer will know the rules and limitations for your expenses.
Additionally, if you have a question about whether or not an expense is deductible, there are tests that must be met when determining the expense’s write-off value. Two tests regarding travel and entertainment expenses are the Directly-Related Test and the Associated Test. Even if an expense is not considered directly related, it still may qualify under the Associated Test and therefore be deductible by a certain amount.
Keep track of everything for your business, even the expenses that seem “too frivolous” to count. It’s up to your tax preparer to stay current on the tax code while you focus on doing what you do best–running your company.