Travel Expenses Made Simple

June,

I just received your checklist for expenses [Thank You] and I'm eager to order your book. My main confusion/challenge is categorizing travel expenses. Any suggestions &/or checklist for that?

Thanks in advance,
LoriAnn


Dear LoriAnn,

For tax purposes, categorizing travel expenses can be very simple.  The costs fall into two categories: meals & entertainment, and everything else.  That's because everything else can be deducted at 100% while you may deduct only 50% of your meals & entertainment expenses.

Here is a list of typical travel costs:
PLANE & RAIL FARES
TIPS & BAGGAGE
TAXIS & PUBLIC TRANSPORTATION
AUTO RENTALS
LODGING
TELEPHONE
LAUNDRY & CLEANING

TRAVEL MEALS
TRAVEL ENTERTAINMENT

You may read more info on travel expenses in these posts expenses -- travel

-- June

IRS Allows Cheaper & Better Travel Deductions

Hello June!

Thank you for shipping your book that fast.

I began reading it and had a question on lodging expenses. I have a computer programming contract in NYC and travel there every week from Philadelphia. On weekends I usually go back home. At the beginning I stayed at the hotel but later I found that renting an apartment was more convenient and a bit cheaper alternative. So, I rented the apartment on the month to month basis but now not sure on how (if it is possible at all) to deduct the rent expense? Should I calculate the average price per day and deduct days I go back home from the total number of days?... Any ideas?...

For my meals, I am planning to use per diem and I calculate by multiplying on days I am actually there in NYC. Per www.gsa.gov site for Manhattan, it is $64 for full days and $48 for the first and last days.

Thank you.
Dmitriy


Dear Dmitriy,

Good question. And this situation is not covered in my book Self-employed Tax Solutions.

We know the IRS regs don't always make sense but just because it's cheaper and better doesn't rule out a deduction. Assuming you are allowed the travel expense deductions, then as long as the rent is equal to or less than the hotel, you are not staying there longer than you need to for business, and you are not sub-letting it to someone when you are not there you may deduct the entire cost of rent as travel lodging.

And, yes you may use the government per diem for meals & incidentals.

-- June

Meal Expenses For House Sitters

Hi June,

My name is Megan and I'm from Portland, OR. I've recently ordered your book and am looking forward to receiving it.

I've worked on the side as an indie house and petsitter off and on since 2001. I mostly move into people's houses for several nights or weeks and take care of their houses and furry kids while they are away. In recent years I've done this once every month or more, depending on the season.

I may be grasping at straws here but want to cover all of my bases...I'm wondering if my meals while I'm on the job are deductible as a business expense? I go grocery shopping and cook in the home that I'm staying in. If they are deductible and I don't have my receipts from last year, would it be appropriate to use the Standard Meal Allowance?

Thanks,
Megan


Dear Megan,

Meals are deductible as a business expense in only two situations.

1. You may deduct the cost of the meal if you take a business associate to a restaurant, you pay for yourself and the associate and there is a business reason for the meal.

2. You may deduct all costs of your own meals and snacks while traveling. You may use actual cost or the IRS per diem amount. Travel may be simply defined as staying overnight away from your tax home for a business reason . Tax home is the area where you live and generally work.


Were you my client I would not take a deduction for meals even though you stay overnight if you are pet or house sitting in the neighborhood, your town, close by. If you were a substantial distance from your tax home, then I would take meals deductions.

Other tax pros may take a more aggressive approach and deduct all meals while overnight.

Best,
June

Meals Included

Hello June!

I am a sole proprietor.

Currently, I travel to a different city during the week and get back home on the weekends. I was going to use per diem rate for my meals and incidentals while traveling but have a question. Most of the hotels include complimentary breakfast. And when you book, you cannot decline it and get a different room rate.

My question is whether this can prevent me from using per diem meal deduction and if yes, then how do I split room rate into lodging and meal parts (the hotel has no price for the meal part, as it is complimentary)?

Thank you.
DD


Hello DD,

You may still use the per diem amount but were I your tax pro I would deduct the value of the breakfast from the hotel cost. Coffee & a donut being of less value than a full breakfast, of course.

For those of you unfamiliar with per diem for indies, here's how it works:

Instead of using as a business deduction your actual meal costs while travelling, you may use the federal per day amount. There are different rates depending on city and date.

If you tend to eat on the cheap when traveling for business you often get a bigger deduction by using the federal rate.

Here are more of my posts on travel per diem and how to use the charts.

Here is the link for the rates in the USA.

Here's the link for foreign travel rates.

-- June

Meals Deductions: A Quick Overview.

June --

After 20+ years as an executive and employed consultant, I had an opportunity to go on my own last year as an independent. It was a successful year. I provide program management services in the technology implementation space.

I was on a temporary project assignment that has now concluded. I read the tips on your site on deductibility of meals using the IRS per diem meal allowance. As an independent and self-employed, if I use the per diem amount in lieu of actuals, is the per diem amount subject to the 50% limit. Example: per diem rate for 2008 Washington DC is $64. Do I use $64 or $32?

Please advise.

Thank you.
Jason
Bethel Park, PA


Jason --

Here's a quick overview.

Food and beverages offered to the general public are 100% deductible. That means if an artist has a gallery opening and invites the public or if an IT indie invites the community to his new office, then the food and drink is served at these events is a 100% deductible meals expense.

All other meals, whether calculated as actual amount paid or taken from the per diem table, are deducted at 50%.

If not traveling you may deduct meals only when you paid for yourself plus someone with whom you have a business connection and dined for a business reason.

When traveling you may deduct all meals and snacks for yourself; no business associate need be with you. Although all travel meals are deductible they, too, may be deducted at only 50%.

Hope that clears it up for you.

-- June

Working and Traveling in More Than One State

June --

IT Consultant. I started work on 1099 in Oct 2008 on a 6 month contract in CA.

As a 1099 I am subject to self employment tax for Social Security and Medicare. Does CA have any additional self employment taxes to be paid?

If I travel to CA from TX on Sunday evening around 6pm and reach at 10pm, can I claim the full per diem amount for lodging and meals for that day or can I claim the per diem amount only on the days I work in CA?

Thank you
Bill
Dallas, TX


Dear Bill,

California has no self-employment tax. You may be subject to CA income tax. Read my posts here taxes -- state / nonresident state (6)

Travel meal expenses are explained in my posts here expenses -- travel (17) and here expenses -- meals and entertainment (12) and here .

-- June

You must get receipts for meals.

June --

When traveling for work meals are deductible at 50% for the location and time period in question without showing receipts.

If I do photography for an organization at a place where meals and lodging are included, can one still take the meal deduction? Or does the rule, "You can't deduct what you did not pay for" hold?

And what if the meals and lodging -- and perhaps travel -- are in lieu of monetary payment?

Thank you.

Miriam
New York


Hello Miriam,

All deductible business meals -- whether while traveling or not -- are deductible at 50%. However, I think you picked up some misleading info somewhere. You must have a receipt for all business meals and entertainment.

You do not need receipts for meals while traveling if you choose to use the per diem method of deduction.

If meals are included you may not deduct the cost of meals.

If you receive meals and lodging or travel in lieu of payment, then the value of the meals, lodging and travel is income to you. You may then deduct your expenses from that income.

Best,
June

Per Diem Often Advantageous for Business Travel

Hi June,

I have been a marketing consultant for three years. I have an obscure question on business expenses.

When I travel to Washington DC to visit a client and prospects I stay with my sister because it is nicer and less expensive than staying in a hotel. As a thank you, I take her and my brother-in-law out to dinner one night. Total bill has ranged from $100-$150. (I typically stay two or three nights). Should I classify this as deductible meals and entertainment which is limited to 50% of the expense or as a gift which is limited to only $25? Or something else or nothing?

Best regards,
Suzanne ... from Dutchess County, NY


Dear Suzanne,

It is clearly a thank-you gift and so is limited to a $25 deduction. For it to be a business meals & entertainment expense you must discuss business before, during or after the meal or the entertainment.

However, are you aware that when traveling you may deduct a per diem amount for meals and incidentals rather than use actual expenses? I explain it this way in my book, Self-employed Tax Solutions:

Alternative Travel Records
For most of your travel expenses you will have receipts of some sort – cancelled checks, credit cards slips, or cash receipts. Well, after its own fashion the IRS has tried to make recordkeeping for travel easier. Yet, as is ever the case with IRS regulations, it is not self-employeds for whom easier recordkeeping was set up but for employers and employees; the self-employed just happen to benefit from the crumbs that fall from the table.

The IRS has issued per diem (per day) charts. These charts list the maximum amounts allowed to be deducted without receipts for “LODGING” and for “MEALS + INCIDENTALS.” Self-employeds may use the amounts listed for MEALS + INCIDENTALS only.

So, if you do not have receipts for all of your travel meals, then be sure to ask your tax pro about using the alternative per diem method. In your case, a two day/two night stay in Washington DC would get you a $71 X 2 = $142 M&E deduction [2009 rate] as well as your gift to your sister.

Here is the link for the IRS domestic per diem chart .

Best regards,
June

Receipts for Travel Expenses

June --

I have been an indie for 6 months - as a researcher, speaker, and writer about world affairs - in Reston, VA.

When I travel for business, do I need receipts for every bite of food or hotel room I deduct or can I take a standard deduction? If standard, where do I find the rates?

Thank you.
William


Hello William,

On a tax return travel expenses fall in to two categories: Meals and Everything Else.For Meals & Incidentals you do not need receipts. You may instead use the IRS "per diem" amount for the city you were in and the date you were there. The rates are in IRS Publication 1542.For Everything Else you must have receipts. Be sure to read Business Travel Expenses on my website.

Best,
June

Cruise Ship Entertainer Gets No Tax Breaks

Many months ago I received the email below from Charles, a cruise ship entertainer. Charles and I have exchanged email over these months. I had questions for him prompted by my many conversations and correspondence with the IRS. At times I waited weeks for a response from the advanced tax law section of the IRS.

Here's the situation:

Hi June,

I really appreciate your site and what it has to offer... Excellent, clear, understandable advice and information.

Here's my question in two parts: I work as a guest entertainer on cruise ships. I spend most of the year away with a few weeks at home.

I also hire dancers and technicians on the ship for my show and pay them in cash onboard. They are not US citizens and do not get a 1099 from me. I simply have a record of paying them. Do I need to send out 1099's? Is there another way I should do this? It adds up over the year to a considerable amount.

The second part is that if I'm spending 330 days outside the US on the ship, do I qualify for the foreign earned income exclusion? Or, if not, since I pay for meals, etc. is there a per diem amount I can use for those days out at sea or in port in other countries.

There's not a lot of info for us cruise ship workers, but I hope to learn more.

Best,
Charles

I also learned from Charles that the ship is registered in the Bahamas and he is paid by the cruise line. He visits up to 20 or more countries each year and is in US ports sometimes for a few hours. He's in international waters about 95% of the time.

When not on a ship he lives in Las Vegas, Nevada. He has a house there and a Nevada driver's license. Charles says that he does not consider Las Vegas his place of residence since he is never there. "I live on a boat but visit my house once in a while to dust," is what he tells people.

The ship provides accommodations, but Charles pays extra for meals and incidentals.

My findings ...
The good news is that Charles is doing it right regarding the independent performers he hires. His payments to them are business deductions and all he must do is keep a record of payment. No 1099 is required. This is because the work is being performed outside the US.

The bad news is that someone in Charles' working situation does not get a business travel deduction for meals and incidentals. The IRS gives a deduction for expenses incurred while away from home, such as the per diem for meals and incidentals, to alleviate the burden on someone whose business needs require him to maintain two homes. "Home" in this circumstance refers to the principal place of work, not the personal residence. The exception for this circumstance is when the work is "temporary."

And then there's even more bad news. A US citizen may exclude up to $82,400 income earned in a foreign country or countries if he is a bona fide resident of another country or countries. [Read more about foreign earned income here.]The cruise ship travels to many countries and through international waters. Charles resides on the ship. The Bahamanian ship is not considered a residence in the Bahamas. Charles is an itinerant and so gets no foreign earned income exclusion.

Minister's Travel Expenses

June --

I am an ordained, self-employed minister. I will be traveling out of town serving as a interim for a local church. I will be leaving my home and staying in a different town 110 miles away from Sunday to Thursday. Am I entitled to the per diem method for taxes and can I deduct the mileage?

Thanks for your help.
Ed from Knoxville, TN


Ed --

I assume you work from home and that this assignment is temporary. The costs of getting there and back [travel expenses] are deductible. You may also use the per diem for meals and incidentals [not lodging] . You may use only actual costs for lodging.

There is more info on travel expenses at this link.

-- June