If you are self-employed and travel for your business, any unreimbursed costs you incur on your trips may be tax deductible. While this is great news for small business owners looking to reduce their tax liability, it can quickly turn sour if you do not properly document your expenses and your deduction is denied by the IRS.
To make sure your travel deductions are foolproof even if examined closely by an IRS agent, you should always do the following.
Keep all of Your Receipts
Like any other tax deduction, you’ll need to keep documentation of expenses incurred. This means that saving receipts, whether digital or physical, for things like your flight, rental vehicle, meals, hotel stay, etc. is crucial.
Record the Details
While keeping receipts is important, simply having proof of your travel expenses is not adequate in the eyes of the IRS. If you are audited, you will need to be able to provide specific details to justify each deductible cost. Make sure you always keep a record of:
- The amount of the expense
- The date and time the expense was incurred
- The reason for the trip or meeting
- The relationship with the client
Note that your credit card statements may be used to corroborate any expenses you have claimed. It may also be pertinent to write down any specific tasks completed or items discussed during activities like lunch meetings. In general, more documentation is always better and you should follow the normal rules for meal reimbursements when travelling.
Special Rules for Vehicles
There are also special rules in place for deductions that involve the use of a vehicle during a business trip. Make sure you keep detailed records of the business purposes behind any commuting or other travel you do during a business trip. If your trip also included personal recreation or if family members are also present, you will need to note this and only claim the appropriate percentage of costs for work-related expenses.
Unfortunately, travel expenses are one of the most abused deductions on tax returns. As such, the IRS is careful to look closely to make sure that any claims of business-related travel costs are warranted, adequate, and legitimate. To avoid getting into trouble and potentially owing both extra taxes and interest, keep detailed records of all of your work trips, including the amounts you spend, the dates and times of each expense, the reason for the trip, and the relationship you are attending to while you are travelling. You will feel much better and be able to enjoy your trip if you know that you are covered with documentation!