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Travel and Entertainment Expenses

When it comes to traveling and entertainment expenses for business, they need to be well documented so that no eyebrows are raised with your tax return. We’d all like to take a trip to Hawaii and write it off on our taxes but that may not be possible unless the trip complies with the tax laws regarding these expenses. If you have questions about travel and entertainment relating to your business, read on to find out more.

For travel and entertainment expenses to be considered as deductions, they have to be ordinary and necessary for your business. Ordinary means that they are part of what is considered normal for your type of business. If you are a doctor, talking business with a client in a nightclub may be a stretch. Deducting the cost of a meal in a fancy restaurant may not. You can discuss business in that setting and both of you have to eat.

Necessary means that it is something that is helpful for your business. Traveling to California to meet with a client who lives out there is necessary. Taking your family with you and trying to deduct the expense is not. Any travel or entertainment expense that is used for business and personal reasons has to be divided accordingly for the purpose of business deductions.

There is a wide degree of latitude for travel and business expenses but be sure to document everything. An overnight business trip is deductible if it is necessary. If you arrive and your client has an urgent meeting and must push yours back to the following day, it is a necessary reason to stay another night. The cost of the room, taxi or airport shuttle, plane fare and tipping are all deductible business expenses.

Any form of travel for business that is ordinary and necessary can be claimed as a business deduction. The travel doesn’t have to be yours to qualify. Flying a potential employee to see your company or a client to your offices is an example of a travel deduction. All expenses in relation to his visit are deductible.

Entertainment expenses have to be necessary and ordinary. Showing a client the night on the town while he is in your city may qualify as an entertainment expense that can be deducted on your taxes. Entertainment is a bit harder to justify unless you are someone in the entertainment business, in which case taking clients to nightclubs and shows would be a part of the normal business practice.

Meals that don’t qualify for reimbursement during a trip are subject to a fifty percent deduction. Meals with a client where business is discussed can be deducted as a travel expense when visiting the client. Remember not to try to deduct one event more than once. For example, if you deduct your meals on an overnight trip as travel expenses, don’t try to use the same meals to claim a deduction for unreimbursable business expenses.

Keeping an organizer that lists the dates of your trip plus an envelope for all receipts will ensure that no deductible expenses are missed. Consult a tax professional if there are questions regarding the validity of an expense. If you can prove that business was conducted, the expense should stand.

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