Question of the Week
Making The Most Out Of Business Travel
Happy Friday, all!
I’m excited and anxious about traveling for my first financial planning conference in almost three years tomorrow! Of course, it will take adjusting to celebrate and learn with planners and business owners I used to see regularly. But it feels like it’s time to get mobile again.
We, as business owners, have several advantages when making the most of our travel, so today, I want to cover the basics about maximizing the value of business travel.
Don’t forget ordinary and necessary.
Before we get into travel specifically, I want to revisit two essential words regarding business deductions — ordinary and necessary. These two words are the center of how the IRS defines a business expense. But they may not mean what you think they do.
“Ordinary” in this context means the type of expense that a business like yours typically takes. For example, it’s common and accepted for tax preparers to pay for software, malpractice insurance, and continuing education. Because these are common and accepted in the profession, they are considered ordinary expenses.
However, this point can get very business-specific. For example, it’s not ordinary for tax preparers to deduct breast implants as a business deduction. But for dancers at strip clubs? It’s another story. Even though my tax preparation business can’t deduct that expense, a stripper at the club in the city might.
The other part of the equation is necessary. I’m still unsure why the IRS uses this particular word since they mean “helpful and appropriate for your trade or business” rather than mandatory or required, as you might expect. So as long as an expense is helpful, you can consider it a business expense.
Deducting business travel
For business travel specifically, deductible expenses are the ordinary and necessary expenses of traveling away from home for your business. In this case, your ” home ” is the entire city or general area where you work or have your principal place of business, which may not necessarily be where you live. If you don’t have a regular or principal place of business because of the nature of your work, then your tax home may be where you regularly live. You have to be away from your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.
When figuring out your principal place of business, the IRS considers factors like the total time you ordinarily spend in each location, the level of your business activity in each site, and whether your income from each place is significant or insignificant.
Quote of the Week
“Certainly, travel is more than the seeing of sights; it is a change that goes on, deep and permanent, in the ideas of living.” – Miriam Beard
Task of the Week
As I mentioned above, you can only deduct those that are ordinary and necessary for business. However, knowing the rules around the travel deduction will allow you to leverage business vacations that may have a bit of personal use. So take some time to read over the nuances and start fantasizing about your upcoming business/personal travel trips.