It's important to document and manage your business travel expenses effectively. Here are some answers to some of the questions we are commonly asked:
Question 1: Are the business travel documentation rules different if I operate my business as a corporation versus as a proprietorship?
Yes and no.
Not different. Regarding deductions for lodging, meals, or other travel expenses, the rules governing receipts, business reasons, and canceled checks are the same for corporations, proprietorships, individuals, and employees.
Different. If you operate as a corporation, the corporation is a separate legal entity from you. You are an employee of that corporation. To get the best tax results, you
need the corporation to reimburse you for the travel expenses, or
have the corporation pay the travel expenses. Either way, you have to document the travel expenses as explained in the answers below.
Big change. The Tax Cuts and Jobs Act eliminated for the years 2018–2025 your ability to deduct employee business expenses on Form 1040. Thus, as an employee of your corporation, the only way to realize the tax benefit for travel is via direct corporate payment of the travel (say, via a corporate credit card) or reimbursement to you.
Question 2: Do I have to keep a tax diary for my business travel?
No, but the timely records you keep must prove the four elements below: 1
Amount. The amount of each expenditure for traveling away from home, such as the costs of transportation, lodging, and meals.
Time. Your dates of departure and return and the number of days on business.
Place. Your travel destination, described by city or town.
Business purpose. Your business reason for the travel or nature of the business benefit derived or expected to be derived.
Question 3: Is there an easy way to keep a tax diary?
Yes. Use the Tax Diary System. Here is what the entries for a day of travel would look like:
The system captures the four elements that the IRS requires, including the date—the date is above the snippet you see in this image. Yes, this is a paper copy, and there are dozens and dozens of smartphone apps for travel. We’re sure some of them are good, but we haven’t tested them in depth and don’t know which ones to recommend, so we don’t have a recommendation. But this we know for sure: spending a little time putting your travel expenses in the Tax Diary System helps you make sure you capture all the expenses and record the necessary information.
Question 4: Why are travel meals separated from other travel expenses?
Lawmakers don’t like the meals you eat while traveling. To prove their point, they enacted a 50 percent cut in your tax deductions for travel meals. 2
In the image above, travel meals and snacks total $123 for the day. On your individual or corporate tax return, you enter half that amount as a tax deduction. On the corporate return, the other half is a Schedule M-1 adjustment.
Question 5: Do I need receipts?
Yes and no.
When in tax-deductible travel status, you need a receipt, paid bill, or similar documentary evidence to prove 3
every expenditure for lodging, and
every other travel expenditure of $75 or more, except transportation, for which no receipt is required if one is not readily available.
Question 6: What is a receipt?
The receipt is a document that establishes the amount, date, place, and essential character of the expenditure. 4
Hotel example. A hotel receipt is sufficient to support expenditures for business travel if the receipt contains the 5
name of the hotel,
location of the hotel,
date, and
separate amounts for charges such as lodging, meals, and telephone.
Restaurant example. A restaurant receipt is sufficient to support an expenditure for a business meal if it contains the 6
name and location of the restaurant,
date and amount of the expenditure,
number of people served, and
if a charge is made for an item other than meals and beverages, an indication that such is the case.
Question 7: Can't I simply use my credit card statement as a receipt?
No. Your credit card statement is like a canceled check. It proves only that you paid the money, not what you purchased. 7 To prove the travel expenditure, you need both the receipt (proof of purchase) and the canceled check or credit card statement (proof of payment).
Question 8: What is a timely kept record?
The IRS says that a log maintained on a weekly basis that accounts for activity during the week creates a timely kept record. 8 This is good. In other words, the IRS deems that you meet the requirement to record your travel expenses at or near the time you spend the money when you keep a weekly or more frequent log. 9
Question 9: Since I don't need a receipt for a travel expense under $75 other than lodging, how does the IRS know that I'm not cheating?
Where did you get the cash to pay the expense? Did you make an ATM withdrawal? Did you cash a check? You can see that the IRS has many ways to know.
Question 10: Should I keep receipts if the expense is under $75?
Yes. We can think of no reason not to keep the receipt, regardless of the amount. Think about it. The receipt is proof positive. When the travel expense is less than $75, the IRS allows you to simply write down the expense, but doing so is not proof positive as it is with the receipt. We advocate proof positive for your travel records. This helps the IRS imagine that you have great records for all your expenses.
Question 11: What are travel expenses
In a nutshell, a travel expense is an expense of getting to and from the business destination and an expense of sustaining life while at the business destination. Here are some examples from the IRS: 10
Costs of traveling by airplane, train, bus, or car between your home and your overnight business destination
Costs of traveling by ship (subject to the luxury water travel rules and cruise ship rules)
Costs of renting a car or taking a taxi, commuter bus, or airport limo from the airport to the hotel and to work destinations, including to restaurants for meals
Costs for baggage and shipping of business items needed at your travel destination
Costs for lodging and meals (meal costs include tips to waitstaff)
Costs for dry cleaning and laundry
Costs for telephone, computer, internet, fax, and other communication devices needed for business Tips to bellmen, maids, skycaps, and others
Question 12: What should I keep in mind when submitting travel expenses to my corporation?
When you operate your business as a corporation, keep in mind that the corporation is a separate legal entity (person) from you.
If you incur travel expenses on behalf of the corporation, you can’t deduct those expenses personally as employee business expenses because such expenses are not deductible for years 2018–2025 thanks to the Tax Cuts and Jobs Act.
This means that you need to submit the expenses to the corporation for reimbursement. You want to do this under an “accountable plan.” Essentially, this means you will submit the expenses in a manner that documents the expenses in accordance with the IRS rules.
One simple way to do this is to give your corporation your Tax Diary System pages for reimbursement, supported by the appropriate receipts.
If you prefer, you can submit an expense report to the corporation that satisfies the IRS requirements for the travel deductions. This means proving where you were and why, along with documenting that the travel record submitted or summarized was kept on a timely basis and that the expense report contains the required receipts.
Finally, consider using a corporate credit card and properly documenting the expenses. With this method, make sure you settle any cash advances and cash out-of-pocket payments with the corporation on a timely basis, meaning within a week. You can do this with entries in the books of account, reimbursement to/from petty cash, or by check to/from the corporation
Questions?
These are just a few of the most common questions regarding business travel expenses. Please contact TrueBlaze Advisors so we can answer any questions you may have.