In my last post, Why Deducting Travel Expenses Makes So Much Cents, I introduced you to the idea of starting a small side business for the purpose of making more money and saving valuable tax dollars. If you operate a business you have the opportunity to write off all kinds of trips that would not be possible if you were nothing more than a W-2 employee. That’s because the tax laws governing travel deductions are fairly liberal (believe it or not!) for the self-employed.
So how can you deduct travel expenses for your small business?
Let’s begin by defining what kind of travel is tax-deductible. First of all, the IRS says travel must be “business travel” in order to claim it. Business travel occurs whenever you travel away from home, overnight, or for a period of time sufficient to require sleep. “Aha!” you might be thinking, “I’ve been out of town on vacation in the last few years and had to sleep overnight, I bet all of that vacation would have been tax deductible.”
Well, no, it wouldn’t be unless you conducted some business while on that trip. “Yes, but what about the time I went to Hawaii and while I was there I passed out my business cards?” Can you write off such a trip since you seemed to conduct “business” while there? The answer is probably not, because in addition to sleeping overnight somewhere, you also must have a “primary intent to do business” before you go on the trip in order to claim the expense.
Suppose in order to do more business you need to travel from Washington D.C. to New York where you must give a seminar during the day; let’s further suppose that you then traveled home in the evening of the same day. Does that constitute business travel? No, because you didn’t sleep overnight anywhere. What if you travel 70 miles down the road from your office to a nearby city to give an early-morning lecture and you sleep over in a hotel in that city the night before to be sure you make it to the lecture on time? Is that considered business travel? You bet. The IRS has no minimum mileage requirement for travel as long as your intent to do business was present before you made the trip and you slept overnight. You can travel 10 miles or 10,000 miles, it doesn’t matter as long as you sleep overnight in a bed other than your own.
How can you show “business intent” before you travel? I’ll use the following example of a woman I’ll call Loni to spell this out.
Loni is a public relations consultant who just happens to love Las Vegas. When she found there was a tradeshow in Las Vegas where she could meet some potentially important editors to discuss one of her client’s consumer electronics products, she decided it would be a perfect opportunity for her to take in some of the new attractions she had been dying to see.
Before the tradeshow, Loni contacted by e-mail 10 different editors she wanted to speak with at the show and set appointments to meet them in her client’s booth. She conducted press briefings with these editors on the first two days of the show, and on the remaining three days, spent her time having fun on the town.
Was Loni able to write off the entire trip to Las Vegas? You bet. That’s because she met all of the business travel criteria.
- She was away from home overnight.
- She contacted, in writing, people with whom she wanted to conduct business before her trip.
Tip: Keep a copy of letters or e-mails showing that you had some business intent before making the trip.
Now, even though Loni was able to write off this trip because it was considered business travel, she still had certain IRS requirements to meet that dictated what expenses she could claim and what percentage of those expenses could be deducted.
In my next post I will go into more detail about these requirements, so stay tuned!