Tax Deductible Business Expenses- Which ones can I write-off?
From Mark Kohler,
Recently, I’ve had a lot of inquiries about what may or may not be deductible on a business trip. Frankly, this isn’t very surprising due to the passage of the new tax legislation, known as the Tax Cuts and Jobs Act (“TCJA”).
The elimination of the entertainment expense and the collateral damage it’s wreaking on the meals expenses has many worried about their business travel, and related leisure. Some believe that all of these expenses have left the harbor never to return, and regrettably, their concerns are valid.
Let me shed some light on the situation and help provide a little clarity. As usual, the best way to do this may be to use an example of an upcoming business trip common to many.
Example: You are scheduling a trip for an annual conference and training that takes place out of state. The purpose of the meetings will be necessary training, education, and networking.
Question: What is deductible and what are the applicable rules I should be concerned about?
First, in order to answer this question, keep in mind that a trip such as this is broken into several expense line items. There will most likely be a mix of travel, auto, meals, supplies, registration fees, or even marketing expenses. Thus, it’s important you track your expenses in a detailed manner and understand their differences.
This is the ‘low hanging fruit’ regarding the expenses on the business trip, and certainly, the easiest issue to grasp and discuss. Assuming the trip is entirely for business (something I’ll discuss further below), the good news is that all of the following expenses are 100% deductible:
- Train or any public transportation expenses
- Uber, Lyft or Taxi
- Rental car, gas and any related fees
- Hotel, Airbnb or Vrbo
- Valet, tips
- Parking fees at the conference and tolls driving in the area
- Parking fee at the airport while you're on the road
Potential for Auto Expenses
Let’s say you decide to drive to the conference rather than take a plane, train or bus (if you want to subject yourself to such misery), then your standard auto deduction rules apply. Thus, if you drive an SUV or a truck (and throw the cost of gas to the wind), then you can deduct all of your out pocket costs for your auto and continue to depreciate your vehicle.
However, if you are like 90% or more of my clients, you are on the ‘mileage method’ you're allowed to deduct 54.5 cents per mile all the way there, running around town as needed at the conference and the entire drive back. Essentially, the mileage expense takes the place of your airfare and rental car, but all the other travel expenses above would still apply.
DON’T FORGET, if you still went to the airport and flew to the conference, you can deduct the business mileage on your own car to drive to the airport for your trip.
Meals while on the trip
Yes, dining out has been a confusing matter after the TCJA, but meals while traveling survived. Thus, don’t fret and enjoy the food. Again, assuming the trip is 100% business (see below), then ALL of your food is deductible, BUT limited to 50%. Thus, if you pay for a $40 steak dinner and a $10 tip (don’t be cheap), then your total meal cost is $50, BUT the actual write off is $25. ($50 x .50%)
Nevertheless, meals all the way there and during the conference are a write-off and remember it includes your coffee in the morning, Rockstar at lunch (my Achilles heel), and even the bar tab in the evening.
Two points of CAUTION: Room Service is still 50% (don’t try and bury this in the hotel bill, it’s still 50%), and if you buy someone else dinner on the trip, it probably isn’t a write-off. Now, I’m not talking about traveling with your board of directors, business partner, or employee…these meals are still part of the traveling meals expense. What I’m saying is that if you were to take a prospect or client out to dinner while on your trip, until further IRS Regulations that meal would probably be considered an entertainment expense and NOT a write-off. Be careful about this one. More on the dining expense here.
Entertainment while at the conference
This is the killer. Basically, this entire expense has been gutted from the Code under the TCJA. More about the entertainment expense here. So here is the list of what you CANNOT write-off while on your next business trip:
- Golf with client, prospect, partner, employee or ANYONE
- No spa, pedicures or manicures with your shareholders or ANYONE
- Baseball, basketball or football games
- Movies in the hotel room (even the unlisted titles)
- Theatre tickets, concerts, or events
- Basically anything fun!!
Conference fees and related expenses
It may go without saying, but I do so anyway. All of the conference registration fees, supplies, and related promotional or educational material you buy at the conference is 100% deductible. This is, of course, assuming the conference is directly related to the production of income in your business and not a self-help or marriage enhancement retreat your attending.
Also, keep in mind that if while attending this powerhouse business conference you decide to sponsor a booth and do some advertising, give out some promo material and capture contacts, all that should be deductible 100% as a marketing expense.
Rules I should be aware of
Making sure the trip qualifies for as many days business as possible is key. Essentially, you want the trip to be 100% business. There are really 3 important factors:
Factor 1 – The day of travel there, and the day of travel back are considered business.
Factor 2 – In order for each day to count as business, you must do at least 4 hours of business, OR attend a required meeting that couldn’t be combined or taken care of on another day during the trip,
Factor 3 – Remember, weekends don’t count. If you can do valid business on Friday and Monday, essentially requiring you to be there over the weekend, then the entire weekend qualifies as business too.
For example, if you fly on Thursday, do required business on Friday or work for 4 hours, get stuck there on the weekend, and then attend another required meeting that couldn’t have been handled on Friday, THEN travel on Tuesday, the entire 6 days are a write-off and qualifies as a 100% business trip.
Also, I hate to say this, but I can’t write off your speeding ticket on the way there or the parking tickets you got outside the conference center because you were lazy- Sorry.
One last word of caution as a fellow business owner – “Don’t let the tail wag the dog”. Just because it’s a good write-off doesn’t mean you can throw caution to the wind and rack up a big credit card bill on the trip. Be cautious, be on a budget and don’t overdo it. Remember, a penny saved is a penny earned. Business travel can truly cut into your profit. Be cautious and wise.
By Mark Kohler
Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Business Owner’s Guide to Financial Freedom – What Wall Street Isn’t Telling You”,and “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com.