For any enterprise, big or small, tracking business expenses is necessary for understanding the "big picture" of the company's financial situation. Having an excellent handle on tracking business expenses means that the business owner always knows how much money is outgoing, how much is incoming -- and how much taxes are to be paid at the end of the tax year. This article will go over what exactly travel expenses are, and the best hands-free solution to recording all of your business travel tax deductions.
Note: If you would like to automatically track and organize your travel expenses, try Bonsai Tax. Our software saves users on average $5,600 on their tax bill. Claim your 14 day free trial here.
Tracking Travel Spending On Business Trips Is Not A Freelancer's Strong Suit
"Travel expenses" is one category of a business deduction that, depending on the nature of the business, can add up to a pretty penny and, hence, can qualify for a hefty tax write-off (1099 Uber, Lyft, Instacart delivery driver, and GrubHub independent contractors come to mind, but it also applies to many other types of freelancers).
While many large businesses hire accountants to stay on top of such things, for independent contractors, freelancers, and other 1099 self-employed workers, keeping track of their travel (and all other) spending falls right back on their own shoulders, causing anxiety and confusion.
The anxiety comes from having to maintain a rather cumbersome, time-consuming process of logging receipts, organizing different categories of spending, and paying ongoing attention to a bunch of "paperwork". The confusion comes from not always understanding how to accurately break down all the different categories of spending: what's a "travel expense" anyway, and how does one even begin to keep track of, organize, and calculate these as deductions on the tax return??
The Simple Solution For Contractors
As the result, many freelancers would rather walk barefoot on glass than engage in meticulous record-keeping and budgeting... And yet, if they don't do it, they end up losing money they could have otherwise spent on the business (or themselves!)
Thankfully, there now exist expense tracking apps that can take all that obnoxious "paperwork" and streamline it into a fast and easy digital process that doesn't cause your head to explode!
The Bonsai Tax expense tracker app lets you import, scan, sort, track, and store your business spending materials -- including travel expenses -- in a cloud-based online account you can access from anywhere. It tracks your income and expenses, issuing expense reports and income tax return estimates in real-time so that nothing ever "piles up" to the point where you just want to walk off into the sunset, away from it all...
Let's take a closer look at why the Bonsai travel expense tracker software/app is so popular among freelancers.
Expense Tracking Is Essential For Freelancers
In general, tracking all the financial records and keeping records for three years is necessary for any self-employed worker. This applies as much to solo freelancers as it does to giant corporations. Knowing how much money you have coming in and how much going out has an effect on every aspect of your company: from figuring out your "return on investment", to knowing how much you'll owe in taxes at the end of the year, to being able to write off some of these costs as deductions, saving yourself money.
If you have any business expenses at all, it is unrealistic to think that you can just keep these numbers inside your head and still maintain an accurate conception of the cash flow. You need to know how your business operates financially. Like it or not, running a business involves budgeting -- i.e. dealing with numbers.
Therefore, your challenge as a successful freelancer is not how to avoid tracking business write-offs but how to track business expenses as efficiently and painlessly as possible with the best financial management tool -- and that is where expense-tracking tax software like Bonsai Tax can make *all* the difference.
Who Needs A Travel Expense Tracker?
If you are a self-employed worker who travels / drives exclusively for business purposes at least some of the time, you should keep a log of your travel spending (among other categories of business expenditures), where you add expenses on an ongoing basis. Doing this helps in several ways:
- Providing a real picture of spending, with numbers that are diagrammable. This can help you better understand the breakdown of what the business spends money on.
- Keeping track of all the receipts for tax write-offs, as some business travel expenses are, indeed, deductible on Schedule C (Schedule F if you are a farmer), Form 1040, of your tax return (and this saves you money!)
- Preventing last-minute pile-ups and unpleasant "surprises" from catching up to you at tax-filing time.
With the Bonsai Tax app, your main responsibility is to remember to scan your physical receipts for cash into the expense tracking software, as well as to maintain a general vigilance toward tracking expenses/accounting for receipts. The software can do the rest: from importing your credit card and bank account statements to categorizing different expenses in accordance with their deductible potential to filling out the bulk of your tax return with qualifying expenses pre-sorted into the proper graphs for deducting. It's no wonder why it is considered the best receipt app.
Which Purchases Qualify As A "Travel Expense"?
The Internal Revenue Service (IRS) defines business travel expenses eligible for a tax deduction as: "the ordinary and necessary expenses of traveling away from home for your business, profession, or job," and offers the following description: "You're traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day's work, and you need to get sleep or rest to meet the demands of your work while away."
What the IRS defines as as a "tax home" is "the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home."
Common Travel Expenses
Keeping in mind that the IRS will not honor a travel expense it deems "lavish or extravagant", the most frequently deducted travel expenses while away from home include the following costs.
Note: If you would like an app to automatically identify all of your travel expenses from your bank statements/credit cards, try Bonsai Tax. Our software scans and organizes all your receipts to find tax write-offs you can claim at the end of the year. Users typically save $5,600. Try a free trial here now.
- Travel by train, bus, airplane, or car between one's home and one's business destination
- Public transportation/taxi fare between: the airport/train station/bus depot and one's place of accommodation or one's hotel and the client(s)' location/business meeting / temporary work location
- Lodging
- Non-entertainment-related meals (deductions can be calculated by using the "standard meal allowance" set by the IRS; business meal deductions are typically limited to 50 percent of the unreimbursed cost of the meal)
- Shipping of baggage/sample materials between one's regular office and temporary work location(s)
- Business calls made during the business trip (includes fax)
- Using one's own or rental car at the business destination (one can utilize either the "standard mileage rate" or the "actual expenses" method to deduct the car expenses, along with business-related tolls and parking fees.)
- Tips paid on any of the above services
- Entertainment expenses
Additionally, freelancers who use their own (or leased) car for business purposes even within the territory of their "tax home" can still write off some of the business-related car expenses (using the above-mentioned "standard mileage rate" or "actual expenses" deduction methods), in cases of:
- driving to meet a client or driving between multiple client meetings
- driving to the store exclusively for office supplies
- driving between several places of work (does not include "commuting miles" to / from home)
- driving to a professional convention, as long as one's participation in it benefits the business
- driving to a meeting with a professional consultant (like a lawyer or finance manager) who advises/provides services to one's business
Here are some of the key differences between the Actual Expense versus Standard Mileage Deduction write-off methods (remember, they are mutually exclusive).
The Actual Expenses Deduction
The actual vehicle expenses deduction is the old-school itemized receipt-based tax write-off method, requiring the business owner to hold on to all the relevant receipts for work-related gasoline expenses and vehicle maintenance, repair, insurance, title, licensing, registration, depreciation, and other costs. The freelancer also has to come up with an estimate on the percentage of their car's business use.
To calculate actual expenses for the year, take the total value of all your car expenses and multiply it by the percentage of the vehicle's "business use".
Of course, with the Bonsai Tax travel receipt organizer app, the calculations are taken care of. All you need to do is remember to enroll the relevant car expenses into the expense tracker app that don't show up in your credit card/bank account, as well as provide the estimated percentage of the car's business use: the rest is sorted by the tax deduction tracker app.
The Standard Mileage Deduction
In the past, before useful apps like Bonsai Tax were available to the consumer, the above-listed "actual expenses" method -- with its extensive itemized record-keeping -- was considered rather cumbersome and intimidating by the average small business owner, so the IRS came up with the standard mileage reimbursement approach to simplify the experience of writing off one's "business miles" on a personal vehicle.
With the standard mileage method, the business owner keeps track of all business travel miles driven for business use. To calculate the write-off, add up all the qualifying business miles and multiply them by the IRS-set mileage rate (in 2021, the standard mileage rate is $0.56 per mile).
As you may have guessed, the Bonsai Tax expense tracker takes care of these calculations as well -- as well as automatically fills them into the appropriate digital tax forms when it's time to file the tax return.
The Bonsai Travel Expense Tracker App Difference
Tracking your travel expenses through the Bonsai Tax app will not only help with future deductions (which is a huge deal on its own!), it will also show you what your travel spending looks like and help you budget better for future business trips. Using our app will help you avoid using an expense tracker template.
Here are just some of the useful features you will find with Bonsai's expense tracker:
- Helps manage bills and the budget in real-time, on web and mobile (Android and iOS) apps
- Automatically imports expenses from all connected credit cards and bank accounts
- Features a receipt scanner to consolidate, track, and organize your cash expense receipts in a digital, cloud-based account (feel free to recycle the hard copies after they've been scanned, to keep your archiving clutter-free)
- Easily adds expenses to your projects and invoices
- Supports expenses in multiple currencies, with real-time foreign exchange rates (currencies matter to travelers with international business travel costs)
- Analyzes your spending and issues quarterly estimates of how much tax you will owe for the year (good-bye unwelcome "surprises"!)
- Makes it a snap to create an expense report to help you monitor your budget
Unlike other travel expense tracker software, the Bonsai Tax app does not require you to download anything: the app works on your computer or (Android / iOS) phone with just an internet connection.
If you are already enjoying a "Workflow" or "Workflow Plus" subscription with Bonsai's all-in-one product suite for 1099 freelancers (contracts, proposals, client CRM's, time/task tracking, invoices, forms, etc.), you can sign up for a free trial of Bonsai Tax.
Experience for yourself the functionality, the productivity, and the relief that comes with employing the best travel expense tracker app for the job!
