When you work under employment, then your boss will probably handle the business travel tax deduction for you. However, if you are self-employed, then you will have to handle the travel tax mess all by yourself.
Can you get deductions for business travel? What can be deducted - and most importantly, how can you deduct travel expenses? Read on and find out how you can tackle business travel deductions.
Note: If you want to track all your travel tax deductions, try the best expense tracker on the market, Bonsai Tax. Our app will scan your bank/credit card receipts to discover tax write-offs you can claim from your tax bill. In fact, users typically save $5,600. Claim your 14-day free trial today.
Yes, business travel expenses are taxable. In most cases, the employer will reimburse the employee's business expenses for that trip. This may include food, transportation, lodging, or incidental expenses that could not have been avoided.
When filing for tax deductions, you may deduct the costs of your business expenses as well. Self-employed individuals may deduct their income tax by using Schedule C. This is found within the freelancer tax Form 1040 - a form that every self-employed person has to complete every year.
The IRS has a few simple guidelines when it comes to determining the taxability of a business trip. In most cases, a business trip for tax purposes meets the following rules:
When calculating your travel tax deductions, the IRS will measure the time spent away in days. If you spend most of that time doing business-related activities, then it's considered "mostly business." You'll still be able to get tax deductions, even if you went sightseeing for a couple of hours after a long day of business.
That being said, if most of the trip implies personal activities - i.e., a lot of sightseeing while occasionally doing business - then you might not be able to get business travel tax deductions. This is because the IRS doesn't see the activity as related to your business unless at least 50% of the activity is spent on business.
The only exception to this is when you are traveling outside the U.S. When traveling abroad, you'll only have to spend about 25% of the time doing business - not the full 50%. The only condition is that the trip needs to be exactly this: a business trip for business purposes.
Yes, meals on a business trip are tax-deductible. With that in mind, there are certain strict limits for that as well. If the meal takes place in the company of your business partners - those you traveled to do business with - then the meal enters the category.
On the other hand, circumstances may affect whether the meal is considered "ordinary and necessary" or not. For instance, you may be able to deduct the cost of a meal eaten alone. However, you may only do that if you are dealing with an overnight trip.
You may also deduct the partial costs of the meal if you entertain guests traveling to your main place of business, as long as you meet the IRS rules for meals and entertainment write-offs. With that in mind, you may only be able to get about 50% worth of the business expense.
If you are traveling abroad and want to simplify your record-keeping, then you may want to consider electing the Standard Meal Allowance (SMA). While you still have to keep a record of where you were and why you were there, you do not have to bother much with the meal expenses.
There are a couple of disadvantages that you'll want to keep in mind. The main one is that the Standard Meal Allowance is not that generous. There is a very big chance that your business travel expenses would be much higher than what is covered by your Standard Meal Allowance.
If you want to get the most out of your travel expenses, then you should hang onto the receipts for taxes and calculate the expenses as well. This way, you will be able to deduct the cost of the trip to a much more convenient rate.
Note: If you want an easy way to track business receipts and business meals, try Bonsai Tax. Our app will automatically organize your tax deductions from your bank/credit card expenses and save you thousands of dollars. Typically, users save $5,600 from their tax bill. Try a 14-day free trial today.
As a self-employed individual, you may be able to deduct the following travel expenses:
Transportation is typically tax-deductible, regardless of its nature. This includes the cost of going by airplane, bus, car, or train. Uber rides are also tax-deductible if that is your main way of going around. Baggage fees are business-related, which means they may be deducted as well.
Keep in mind one thing. If a client is responsible for covering your transportation costs, or if your ticket was booked using frequent flier miles, then your travel expenses are not deductible. After all, you won't be paying anything here.
If you rent a car to go on this trip, then the renting cost is deductible as well. If you use your own car, then you can track your mileage to deduct the standard mileage, as it is a business-related expense. This includes the cost of gas or other similar expenses.
You can record your travel miles with our free mileage tracker sheet.
If the conference that you are planning to attend is asking for an entrance fee, then you may have that deducted as well. You just need to prove that the reason for being there is business related, in which case you may get tax deductions.
If you need to pay tips as well, then these can be deducted. In some cases, tips are given on separate receipts - so, to prove that your tip was given for business reasons, you may want to hang into it.
When it comes to business travel, you may get a deduction for business meals worth 50%-100% for all the food. This includes the food outside the business meeting as well. The percentage depends on where precisely you got the food from.
For instance, the 2021-2022 tax rules for business travel deductions say that you can get up to 100% deductions if you get your meals at a restaurant. However, if you choose the grocery store or decide to grab a burger at your airport terminal, that'll be only 50%. Make sure that you keep the receipts for everything that you consume.
Since you will be traveling to a different place of business, away from your tax home, there is a good chance that you'll need to book accommodations as well. This is particularly the case when you cannot avoid an overnight stay.
Various types of business travel expenses can be covered here. This includes motels, hotels, accommodations on AirBNB, and Craigslist sublets. You may even get business travel deductions in case a friend allows you to stay on their couch. You just need to bring proof of it.
If you are traveling away from your main place of business and you need Wi-Fi - whether it's at home or the hotel, then you'll be glad to know that it is tax-deductible. This will apply to other necessary communication expenses, such as international calls or hotspots.
Bear in mind that this only applies when you need to apply an extra fee. For instance, most hotels do not charge extra for Wi-Fi, as it is part of the accommodation's package. Since that part's already been deducted, you can't deduct it separately.
If shipping outside the U.S. is considered an ordinary and necessary business expense, then you should know that these expenses are also tax-deductible.
For instance, you may need to be shipped some extra clothing. Or you may require material for the conference booth that did not fit your main transportation choice. In this case, shipping can be labeled as business travel expenses, and you will get tax deductions for it.
If you are traveling for a longer period during your business-related trip, then you may also have laundry and dry cleaning to consider. After all, you must look your best during your trip. Luckily for you, laundry is tax-deductible, so you may put that down as a business expense.
Note: The best way to maximize your deductions and track all your travel expenses is to use a software like Bonsai Tax. Our app will scan your receipts/records to discover tax write-offs you can submit to the IRS for deductions. Users typically save $5,600 from their taxes. Try a 14-day free trial today.
You may be tempted to try to get everything written off under business travel expenses. However, not everything falls under "ordinary and necessary," so you need to be very careful about what you are trying to write off.
Here are some common things that you cannot get deductions for:
Picture this: you are a self-employed person going on a business trip to Paris, and your spouse wants to tag along for a "second honeymoon." You need to remember that if you accept that, the costs are going to get slightly trickier, as you will be paying for two people now.
In most cases, the cost of bringing another person on a trip with you is seen as a personal expense - which means you will not be able to get business expenses out of it.
There are only certain circumstances in which you may be able to deduct the business travel expenses of your spouse or child. These circumstances are as follows:
If you can give a good explanation as to why they are there with you and how it fits your business, then you may be able to get tax deductions for them as well.
Some hotel charges may be a no-brainer, but not all of them are tax-deductible. They need to be entirely for business if you want them to be tax-deductible. This means that lavish or extravagant features are not needed.
Hotel expenses for a self-employed individual, in most cases, cover sleep or rest. Additional charges such as movie rental fees, gym fees, or game rental fees are not covered. These are considered personal expenses, as they are not necessary for your business to succeed.
Again obvious, but even if work brought you there, you cannot cover everything as a business expense. For instance, if you decide to take a stroll at a local library or attempt to visit some museums while you are there, then you will not get deductions for that.
This is because they are considered private activities that are not related to your place of business. You may be away from your tax home, and you may want to fill your time with something interesting until the conference takes place, but that doesn't mean you need it as well.
Sure, if your conference or business meeting takes you to these places, then you may receive tax relief for this. However, if it's just you and your curiosity, then you shouldn't try to get something out of it.
As someone who just started a small business and doesn't yet have a good hang of how the tax system works, you may be tempted to throw everything on the form and see what you can get a deduction for. Still, things are not that simple.
If you put in expenses that are not deductible, the IRS won't gloss over them with a "nice try." Instead, you may receive a potential penalty for it. This may happen under the following circumstances:
In most cases, you will receive a 20% penalty - however, that penalty is not automatic. Typically, it only applies if you are allowed substantially less deduction than what you originally calculated.
For the IRS, "substantially less" is about 10%. Usually, the only circumstance when you would reach this percentage is if the IRS disallowed multiple tax expenses that you tried to get.
The total penalty is typically 20%. This percentage is the difference between the payment that you normally should have made and the actual payment that you made.
In the end, this will mean that you'll have to pay a total of 120% of your tax obligations: the main 100% that covered your expenses, and the other 20% covering the penalty.
To be sure that you do not incur penalties for the wrong expenses and claim the right tax relief, here are some general rules that you will need to follow:
For it to be a deductible business expense, the destination must be at least 100 miles away from your tax home. These types of expenses are generally not deducted as "business travel" if you are still in the city or general area. You only get tax relief if you are required to sleep or rest somewhere else aside from your house.
Even if your business takes you away from your tax home, you still need to work regular hours. This means that you'll have to cover 8 hours' worth of business activity.
What happens during the evening or on the weekend is no one's business, but you must cover your work quota. You can't log for half an hour on your laptop on your way to Disneyland and then claim it's a business trip.
That being said, if you live in San Diego and you need to attend a conference in California City, then your business expenses will be covered. As long as you go to the business conference during the day, you can go to Disneyland in the evening or during the weekend, and it will still be a business trip.
If you live in a place for more than a year, it's no longer just business travel - you're basically living there. However, it won't affect your tax claims if you travel for 6 months on separate occasions.
For instance, let's say that you are a freelancer from San Diego that gets most of their 1099 work from Upwork. To improve your client network, you decide to go during the summer to Seattle, where your sister lives.
While you are in San Diego, you may be spending personal time with your sister as well, but you'll be working regular hours. This means that your expense will figure under business travel, and you may claim tax deductions.
We live in a time when a lot of people have moved their work to the digital field. Freelancers choose to work remotely as they travel the world. But can they claim tax deductions as they go?
That depends on the circumstances and why you are traveling in the first place. For instance, if you have a legitimate reason to relocate to a different area, then you may get tax deductions for that.
You may need to travel in order to meet some clients with whom you want to collaborate. Or maybe you need to attend a conference, after which you decide to extend your case. Legitimate reasons brought you there, so you may refer to it as business travel.
However, if you live in California and decide to take your software development work to the Maldives simply because you like the place better, then that's not business traveling. You have no legitimate reason to be there for work, so you don't get tax deductions for it.
As long as you meet the requirements set by the IRS, you may claim deductions for actual expenses during business travel. Make sure that everything is calculated accordingly so that you do not get penalties for trying to claim the wrong tax. If you have only begun your small business, then you might want to get a tax advisor to help you calculate your business travel expenses and taxes.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?