Traveling always sounds fun- whether it’s anywhere from two to ten days. But when it comes to business travel, it can get taxing on the brain to organize every receipt that you have. Your business isn’t about tracking receipts, but when it involves your money, and saving you cents, it becomes a priority. So depending on if you are an employee, or an employer, it’s best to prep yourself and make it simple on the back end when it comes to understanding and maximizing your travel expense deductions.
PER DIEM AS ONE FACTOR
If it hurts your brain to track your hotel, meal, and every other expense that entails a business trip, try and go the per diem route. Instead of collecting the receipts, you simply deduct a daily rate. One thing to consider is that the cost varies by the city you are actually traveling to.
Your Average Per Diem allowance (lodging / meals/ incidentals)
- Average $118.00 / lodging.
- Average $64.00 / meals.
- Average $5 / incidentals (the IRS defines this as fees and tips)
As an employee, the IRS allows you to do this.
As an employee, you are done with your proof as soon as you hand it off to your bosses.
This alternative sounds WAY better than the average recordkeeping where you track ALL your receipts. But if you’re the business owner, don’t go skipping rocks just yet.
PER DIEM FOR A BUSINESS OWNER – HOLD THAT THOUGHT
So say you own more than 10 percent of a business as either a C or S corporation, you are not allowed to use what is called a high-low standard meal allowance. The high-low standard is one prohibition, but the STANDARD meal allowance (food and incidentals) IS allowed. What’s the difference you ask? One allowance has lodging built in, the other does not.
The nice thing about a standard meal allowance is that you don’t have to keep every single receipt on the back end to deduct your travel meal. You DO however need to show proof you went on the trip by way of time, place, and purpose.
Here is something to remember as a business owner when it comes to deducting your meals. You can use the whole deduction per day method when it comes to meals, but if a meal runs you more than $75.00, it goes past the allotted allowance, plus you will need the receipt, AND that will be your proof once again for time, place, and purpose.
AS IF THAT INFORMATION WASN’T ENOUGH TO HURT YOUR BRAIN …
As a 1040 Schedule C filer, or if you own more than 10 percent of a business, you’re going to want to be a record keeping ninja and have them compiled together all nice and tight for the IRS at some point.
WHY you ask?
Remember that difference between high-low standard meal versus standard meal allowance that was discussed earlier? Business owners cannot take advantage of the daily per diem that includes lodging. Business owners always need a receipt for lodging, regardless of the amount you spend, or the method of deduction.
At the end of the day, you’re given a few alternatives when you have to travel for work, and who can use what type of deduction. The travel per diem option works for the employee, but not the employer, because it is all encompassing. That’s great if you’re traveling for the company, but not necessarily for the boss, who has to be careful on what standards they are allowed.
The paperwork of tracking receipts is still a reality for the self-employed, but that’s why you ARE the boss, so you can hire an admin and a CPA to help you with this time old tracking method.
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