Vrakas CPAs, Here Are Your Articles for Wednesday, September 07, 2016
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Travel and Entertainment Costs: What Are the Rules?


Thirteen pages of IRS guidelines for deducting travel and entertainment expenses? No wonder complying with the Tax Code feels like driving in a thick fog. Expenses are quite important, though, and the rules are very specific. You don't want to deduct something you're not entitled to or miss out on getting deductions for legitimate expenses.

If your business requires you to travel and stay overnight, you are eligible for tax deductions related to this travel:

  • Meals. Fifty percent of the cost of meals related to travel is deductible, including tip and tax. If you take a client to dinner, document what business you discussed at the meal to pass an audit. An alternative is to deduct a set amount for meals per day — $46 per day. But you can't choose this option for travel outside the continental U.S.
  • Lodging. Deduct 100 percent of lodging expenses for any business trip long enough to require an overnight stay. If you bring a spouse or partner with no business reason to be with you, legally you can deduct only the cost of the room.
  • Various travel costs. You can deduct the cost of travel from airport to hotel, from hotel to work locations of clients, and from hotel to temporary work location. If this includes use of your car, you can deduct business-related mileage, tolls and parking. You can also deduct dry cleaning, laundry and business calls.
  • Cruises. You can deduct up to $2,000 for conventions directly related to your trade held on U.S. cruise ships with a written statement including the number of days of the trip, number of hours each day devoted to scheduled business activities and the program of scheduled business activities.
  • Entertainment for business purposes. These expenses are 50 percent deductible. Entertainment expenses need to be either directly related to or associated with your business. "Directly related" means the main purpose of the entertainment activity is the conduct of business in a business setting, like a hospitality room, and that business was indeed conducted during the activity. Add that you expected to make money or achieve another business purpose from the meetings. Generally, the entertainment must take place the same day as an extensive business discussion to make it deductible.
  • Other deductions. You can deduct dues to civic organizations like chambers of commerce or other professional organizations. You can also deduct the face value of tickets but not service fees or other charges.
  • Items you cannot deduct.  You cannot deduct dues to country clubs or other social organizations, fees for the upkeep of entertainment facilities, and meals already deducted as travel expenses.

When traveling or entertaining for business purposes, it's important to document everything. It's not enough to just keep receipts; you also need to document whom you spoke with, what you spoke about and how it was related to your business. When you travel, the IRS wants you to keep a written or electronic log made near the time you made the expenditure, recording the time, place, amount and business purpose of each expense.

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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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