April 24, 2018, is the first ever National Business Traveler Day launched by Upside, a service for the DIY business traveler, and 23 other leading companies across the U.S. The purpose of the day: to recognize the importance of business travel to the U.S. economy.
Here are 5 things to know — good and bad — about business travel.
1. Business travel in the U.S. is substantial
It’s estimated that there are 445 million business trips each year. Business travel accounts for 3% of US GDP, supports 7.3 million jobs, and generates $135 billion in federal, state, and local taxes.
2. Businesses can write off travel but employees can’t
The cost of business travel paid by a company or a self-employed person is tax deductible. The full cost of airfare and lodging is deductible, but the write off for the cost of meals on the road is limited to 50%.
But for 2018 through 2025, employees who pay out of pocket for business travel can’t deduct any of their costs. No deduction is allowed for unreimbursed employee business expenses. Employers may want to reimburse these costs using an accountable plan, so employees aren’t taxed on the reimbursements and there’s no employment taxes involved.
3. Combining business with pleasure can be deductible
If you take advantage of business travel to do sightseeing, visit friends or relatives, or spend other personal time, you can still deduct the travel under certain conditions.
- If you’re traveling within the U.S. and the trip is primarily for business (you wouldn’t have gone but for the business), then the full cost of the fare to get there is deductible.
- If the travel is to a foreign country, different rules apply to determine whether or to what extent the fare is deductible. This is explained in IRS Publication 463.
Costs related to personal time, such as lodging and meals are on you and can’t be deducted.
4. Budget wisely for business travel
The cost of travel isn’t cheap, even when flying economy. According to Certify, the average cost of a business trip is $949 (covering airfare, lodging, and other expenses) within the U.S. and $2,600 for international travel. Of the total deductions claimed by the 25.2 million sole proprietorships filing returns for 2015, 2.4% was for travel expenses. Obviously, the portion of your budget devoted to business travel depends on what you do.
While tax write offs ameliorate the financial burden for business travel, it’s still a costly item for the business. Here are some ways to control this line on your budget:
- Use credit cards with travel rewards
- Forgo travel in favor of online meetings with Skype, GoToMeeting, etc.
5. Write offs for travel depend on recordkeeping
Boring as it sounds, you must keep required records to take deductions for business travel. This chore can be simplified by using apps as long as you track required information: dates of travel, destination, business purpose, and the cost of expenses.
You can simplify recordkeeping for your staff by using per diem rates to cover the recordkeeping for cost. Per diem rates are:
- A federal per diem rates (set by the General Services Administration) for lodging, meals, and incidental expenses.
- A standard meal allowances.
- IRS-set high-low rates for lodging, meals, and incidental expenses. These rates run for the government’s fiscal year beginning October 1. But you can opt to continue using the rates in effect for the prior 9 months of the year.
Note: If you own more than 10% of your corporation or are a self-employed individual you cannot use the federal per diem rate or the IRS’s high-low rate for lodging; only the actual cost of lodging is deductible. But you can rely on the standard meal allowance.
Conclusion
American Express forecasts moderate price increases for air, hotel, and ground transportation for global travel this year. Take into account the after-tax cost of business in planning for the rest of this year.
