This tax tip provides some critical information on how to document expenses during a business travel to claim your tax deduction.
Corporation or proprietorship – If you operate as a corporation, the corporation should reimburse you for the travel expenses or pay for them directly. Remember, you cannot deduct employee business expenses on Form 1040 anymore because of the changes brought by the Tax Cuts and Jobs Act for 2018–2025.
Tax diary for business travel – Although it is not obligatory, keeping a timely record of your business travel expenses is essential. This record should prove each expenditure’s amount, time, place, and the business purpose.
Travel meals versus other travel expenses – Due to specific legislation, tax deductions for travel meals are cut by 50 percent, therefore, you separate them from other travel expenses.
Receipts – You must retain a receipt or similar documentary evidence for every lodging expense and any other travel expense over $75. A receipt should establish the expenditure’s amount, date, place, and essential character.
Credit card statements and canceled checks – These cannot serve as a receipt, as they only prove payment, not the purchase. Both receipt and payment proof are required to substantiate travel expenditures.
Timely kept record – The IRS considers a weekly or more frequent log of your activities and expenses as a timely kept record.
$75 rule and cheating – Even if you do not need a receipt for a travel expense under $75, keeping one provides a more robust and reliable proof of the expenditure.
What are the travel expenses? They include costs of travel to your business destination and costs for sustaining life at the destination (lodging, meals, communication, laundry, etc.)
Submitting expenses to your corporation – If you operate your business as a corporation, you should submit your expenses for reimbursement under an “accountable plan” that conforms to IRS rules. You can submit an expense report along with the supporting receipts for reimbursement.
I hope this information provides helpful guidance on documenting and managing your business travel expenses effectively. If you have questions or need additional clarification, please do not hesitate to call me or your tax professional.
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