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 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.
"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??
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.
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 software like Bonsai Tax can make *all* the difference.
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:
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.
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."
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.
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:
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 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.
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.
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:
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!
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?