Travel, Meals and Entertainment Business Tax Deductions

If you are a business owner, chances are you spend a significant portion of your business money on entertaining potential clients, current clients, colleagues, and on travel expenses such as hotels and meals away from home.  Although most business owners are aware that they can take a tax deduction for meals, travel and entertainment expenses, many of them are unaware of the specifics of this tax code.

When it comes to entertainment expenses, you are only allowed to deduct half of the total amount you spend (as long as the activity is not “lavish or extraordinary”), whereas regular business expenses are typically 100% deductible.  Expenses that qualify as entertainment are usually easy to distinguish–basically, if the activity is fun and business is discussed before, during, or after, it counts.  Some examples: taking a client on a fishing trip, hosting a ski trip for current clients, attending a sporting event, etc.  The event must have a necessary relationship to your business, such as building relationships with existing clients or networking with potential clients, and you must be sure to keep detailed and accurate records showing the exact amount spent, what it was spent on, and that the expense was paid.  Receipts, invoices, canceled checks and credit card statements all qualify.

Travel expenses paid or incurred in connection with a temporary work assignment away from home are deductible. However, travel expenses paid in connection with an indefinite (a year or more) work assignment are not deductible.  Most travel expenses are 100% deductible (with the exception of meals, which are 50% deductible).  If your meal, while away on business, is eaten while hosting a client or associate for business purposes, it can also be considered an entertainment expense, but you are still only allowed to take a 50% deduction for the expense.  In such a situation, you can choose whether to claim the meal as an entertainment or travel expense.

Deductible travel expenses while away from home include, but are not limited to, the costs of:
(http://www.irs.gov/taxtopics/tc511.html)

  1. Travel by airplane, train, bus, or car between your home and your business destination. If you are provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero.
  2. Using your car while at your business destination,
  3. Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel and the work location, and from one customer to another, or from one place of business to another
  4. Meals and lodging
  5. Tips you pay for services related to any of these expenses.
  6. Dry cleaning and laundry.
  7. Business calls while on your business trip. This includes business communications by fax machine or other communication devices.
  8. Other similar ordinary and necessary expenses related to your business travel. These expenses might include transportation to and from a business meal, public stenographer’s fees, computer rental fees, and operating and maintaining a house trailer.

While most meal and entertainment expenses for a business owner’s employees are also only 50% deductible, some exceptions do apply.  If you host a company party that all employees are allowed to attend or if you provide meals for employees who are required to work overtime, the expense is 100% deductible.  With the many different rules and exceptions associated with these business expenses, be sure to consult with a tax professional if you are unsure about how to categorize your expenses.

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