Who can believe that it’ll be one year this week since the war in Ukraine began. Unfortunately, it doesn’t seem like there’s an end in sight — a heavy realization for those caught in the crosshairs of it all…
Looking back to last February, I can say it’s been a tough year for businesses as well. Supply chains were already interrupted and production was slow (a big obstacle for businesses everywhere). And then inflation took its toll, and you’ve found yourself in constant pivot mode to keep up.
(Not to be a Debbie Downer, but I do want to keep it real for my business owner clients — a strong value of mine.)
The point is: Every dollar counts these days. Which means, finding ways to save your business money counts too.
Besides examining operating costs and cutting out unnecessary expenses, you can also take a look at your tax situation. There are A LOT of ways you can save when it comes to that.
Though not for 2022, unfortunately.
(Speaking of which — have you scheduled an appointment to get your 2022 filing squared away? Time to get on that: waterbury-cpa.com/make-an-appointment/ )
But looking ahead to 2023, there are things you can do to optimize your tax situation. Let’s start with deductions, specifically those having to do with travel. Deducting travel expenses is an area with a lot of change in recent years, but by approaching it right, you could take advantage of some real savings.
Let’s dive in.
Deducting Travel Expenses for Your Business This Year
“It is more deductible to give than to receive.” – Henry Leabo
It seems we’ve reached the point where 2020 is far enough in the rearview mirror for the world to start moving again… which naturally involves more business-related travel. Travel costs have been one of the most famous tax deductions available to small businesses like yours — and they can be a real help in lowering your taxes.
But how you can claim the deduction and for how much is tricky and changes all the time. As we head into filing 2022 taxes and plan ahead for 2023, this will get you started on some things you should know about deducting travel expenses.
Insight #1 for Deducting Travel Expenses: What you can deduct
In a nutshell, you can take business travel deductions if, as the IRS says, they’re “ordinary and necessary.” Examples include:
- You travel by airplane, train, bus, or car between your home and your business destination. This includes fares for taxis or other types of transportation between an airport or train station and a hotel or from a hotel to a work location.
- You ship baggage, samples, or display material between regular and temporary work locations.
- You use your vehicle for business (more on this in a sec).
- Lodging and meals (read on for details).
- You tip for services for these expenses.
This is a partial list, but you get the idea. (Note: If you’re self-employed, you deduct travel expenses on your IRS Schedule C. If you’re in the National Guard or military reserve, you can claim a deduction for unreimbursed travel expenses you laid out while on duty.)
Tax regulations love to change frequently, and the business travel deduction rules are no exception. So… what’s new lately?
Standard mileage rate. You use this number as part of one way (the IRS calls it the simplest way) to deduct your mileage: Multiply the rate by the number of miles you drive (make sure you can back it up with records and logs) on the job.
For 2022, the standard mileage rate is 58.5 cents per mile for the first half of the year and 62.5 cents per mile in the second half. So far for this year, the rate is 65.5 cents a mile. (We’re not sure why the IRS uses half-cents, either.)
Meals. Historically, you’ve been able to deduct only 50% for food and beverages. If you’re still working on 2022 taxes, though, you generally get a special break and can deduct 100% on food and beverages from a restaurant. Conditions apply — check with us.
By the way, the IRS seems to love the word “lavish.” You can’t deduct expenses for meals that are “lavish” or “extravagant” but only for those that are “reasonable based on the facts and circumstances.” The IRS claims they won’t kick your deduction just because a meal costs more than a set dollar amount or because you ate somewhere “deluxe.”
Insight #2 for Deducting Travel Expenses: Where’s ‘away?’
The IRS says you’re traveling if you are away from home longer than an ordinary day of work. You also must need to have to sleep or rest to meet the demands of your work while away from home (napping in your car doesn’t count — yes, they literally specify this).
What’s your “tax home?” For the purposes of business deductions, it’s generally your regular place of business (or post of duty if you’re in the military), no matter where your family home is. If you have more than one regular place of business, your tax home is your main place of business (where you spend the most time, do the most work, and make the most money).
If you have neither because of the nature of your work, your tax home may be the place where you regularly live. If you don’t have any of the above, the IRS considers you an itinerant and you can’t claim a travel expense deduction.
Deducting Travel Expenses Insight #3: Little extras
Incidental expenses. These fees and tips to porters, baggage carriers, hotel staff, and so on are deductible. Incidental expenses don’t include costs of laundry, lodging taxes, phone calls, and transportation between places of lodging or business and places where meals are taken… to name a few.
If you want to keep it simple, you can use the optional method instead of actual cost. This means you would deduct five bucks a day for incidentals only (prorated for partial days). Again, conditions apply.
Recordkeeping. Many a deduction has been chucked due to a shoddy record. Save those receipts. Keep all expenses separate, even if they occur on the same day. Keep a log and note the biz expenses as they happen (aka “contemporaneous documentation”).
The IRS has a good chart of how to prove expenses. You can check it out here.
And of course, always feel free to reach out to us with questions. Deducting travel expenses can be valuable — but puzzling for business owners, we know.
Always here to help,
Emelia Mensa, CPA