Most small business owners will have shared experience: business travel. Some travel lots, some little. Some love it, some loathe it. But regardless of how much you travel and your fondness of it, you need to pay extra close attention to how you handle your travel expenses. More specifically, you need to know how to deduct travel expenses. Why, you ask? Because every penny counts! Learning how to deduct travel expenses minimizes your tax exposure and makes tax time a little easier.
What Counts as a Travel Expense?
Maybe you haven’t had the experience of traveling for business before, and are not quite sure what even qualifies as a travel expense in the first place. Business travel expenses generally fall under the categories of transportation, lodging, meals, and entertainment. Transportation expenses would include costs like plane or train tickets, car rental fees and gas money. Booking a hotel room for the duration of your trip would be a lodging expense, and meals and entertainment would include the cost of any food, beverages, and recreation such as a social event directly tied to the purpose of the business trip (think taking clients to a baseball game).
Like any other expenses incurred in the course of running your business, in order for any of the above categories of expenses to be considered tax deductible, they have to be a reasonable (i.e., justifiable) part of traveling for business, and they need to contribute in some way to your company’s income. The rules about what percentage of these expenses can be deducted will, of course, vary from place to place, so make sure you do your research and consult with a tax professional when necessary to make sure you’re making the most of these deductions.
For U.S. small business owners, the IRS overview of business expenses is a great reference. For Canadian small business owners looking to learn more about how to deduct travel expenses, the CRA has good information as well.
And remember: mileage counts as well! In the U.S., the 2015 mileage rate is $0.575 per mile. In Canada, it’s $0.55 per kilometer for the first 5,000 kilometers driven and $0.49 per each additional kilometer driven after that.
Some Tips and Tricks
We’ve emphasized this point in a recent post about building credit for your small business, but it bears repeating: always make sure to separate business from personal when it comes to travel expenses. You may find yourself tacking on a couple of extra days of travel at the end of your business trip to enjoy the sights, but you’ll need to keep a clear record of which expenses were purely personal and which ones were business-related (and potentially tax-deductible).
Instead of keeping a pile of expense receipts—which can be a nuisance under normal circumstances, let alone when you’re traveling—why not capture your receipts in real-time at the moment of purchase? With Kashoo’s mobile apps (iPhone/iPad, Android), you can snap a picture of your receipts and file them in the cloud instantaneously.
Want to learn more business travel tips and tricks? Check out a first-hand account from our own Kasey Bayne.