Travel Expense Deductions

Joe Taxpayer operates a retail SCUBA diving equipment business as a sole proprietor in Seattle. Joe knows he needs to be consistent in recording his business travel in order to deduct the mileage. He keeps a clipboard, chart and pen in his vehicle, and records his odometer readings every time he gets out of the vehicle. When a page is full, he puts it in his tax file for use in calculating the deduction. He will use the standard deduction for mileage rather than opting for actual cost. He chooses this method because he doesn’t have a separate personal vehicle, and has found this the better way to go for his situation.

Joe goes to the local office supply store occasionally to stock up on supplies. He stops for lunch now and then on the way back to the store, but he knows he can’t claim the lunch as an expense. He is eating by himself, and has no business-related purpose.

Joe picks up the tab when he meets with his banker for lunch, and puts the receipt in a special file when he returns to the store. Meals are only 50% deductible on his taxes, even an “entertainment” business lunch with a customer or business partner like the banker, so to keep his records straight, he has a separate file.

Joe wants to travel 1,200 miles to attend a conference in Las Vegas. The four day conference is in mid-November, and is sponsored by the Diving Equipment and Marketing Association. Joe is going to fly to save the two day drive each way. He expects he will make new contacts, and will learn about the latest trends in marketing for his business. The conference doesn’t include meals in the registration prices. Joe would like his wife to go also, and they want to see a show, maybe the Tournament of Kings. They are also considering renting a car to visit the new bridge over the Hoover Dam.

Because Joe is in the business of selling SCUBA equipment and he is going to a conference that is “ordinary and necessary” for his line of work, he can deduct the costs of the conference. His travel by air, the cost of the hotel, and the mileage on the rented vehicle going from the hotel to the conference are all deductible. He can still only deduct 50% of the cost of his meals even though he is away overnight. None of the costs related to his wife’s travel or meals can be deducted because she isn’t Joe’s employee. The visit to Hoover Dam can’t be deducted, nor the Tournament of Kings show. Joe needs to keep receipts for all of his expenses, and he should note on the receipt when and why the costs were incurred.

It turns out Joe’s wife can’t go after all, but he meets a potential supplier at the conference, and they decide to see the Tournament of Kings show after the seminars end for the day. The entertainment takes place immediately following a substantial business discussion, so Joe generously offers to pay for the outing, and he is able to deduct 50% of the cost of the tickets.

After he returns from the conference, Joe decides to put into practice some of the marketing information he learned at the conference. He takes a trip to Portland to promote his business to the 7:00 PM Oregon SCUBA Club meeting. This is about 200 miles from his home and store, so he drives his car. After the meeting he stays in a hotel overnight. The cost of the hotel is fully deductible, and his meals are deductible at 50%. He uses the standard mileage rate for travel, so once again he tracks his odometer reading. He also saves his receipts for parking and tolls, and deducts those as well.

Joe Taxpayer keeps his travel records orderly and documented because he has learned a little bit of effort now will mean tax savings when his tax return is filed.

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About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.