02/ 01/ 2005
by Dennis McCafferty
As the owner of a Rochester, N.Y.-based dental supply company, Amit Agarwala likes to say that his company delivers “like pizza men” to dentists. And, these days, Agarwala is logging enough business-travel mileage to put a pizza man to shame.
To attend trade shows, check out products and meet with clients, he frequently travels to New York, Chicago, Nashville and even Europe. And he’s finding that—when it comes to reducing business taxes—he constantly needs to educate himself about what’s OK and what’s not in deducting travel expenses.
“I’m becoming much better at doing write-offs,” says Agarwala, who is owner of Northeast Dental and Medical Supplies. “But there are a lot of rules. Lodging, plane and personal car expenses are deductible, but some meals for overnight stays are only allowed at 50 percent. The IRS is most difficult with these constant rule changes, so lots of documentation goes hand-in-hand with business travel.”
Plenty of small-business owners such as the Agarwalas are in the same situation, as they contribute to the more than 200 million business trips (that’s just domestically) taken every year. To make sense of it all, MyBUSINESS spoke to Eva Rosenberg, author of the just-published book, Small Business Taxes Made Easy. She offers these tips:
Document, document, document: Agarwala has hit it on the head, Rosenberg says. Even personal trips where a little bit of business is mixed in can be deducted—but only if you go about it the right way.
“Make sure you document the business purpose of each trip using letters or e-mails to your business associates, customers, vendors or prospects,” she says. “Keep all receipts and write down the specifics of the business expense in your daily travel journal.” Rosenberg recommends keeping a written account of your travel.
Don’t dismiss something that might be a deductible: Rosenberg has a client whose business requires travel on a ship. Meals and lodging on the cruises are paid for, but Rosenberg determined her client was missing out on a huge tax write-off by not documenting tips. “When he’s on the ship, if he doesn’t tip generously, he won’t get the speedy, attentive service he needs,” Rosenberg says. “Once I got him tracking the actual cash tips he was paying, his travel expenses nearly doubled.”
Scared of an audit? Then be sure to double-check your math. Rosenberg warns that you raise red flags with the IRS if your expenses are out of proportion with your actual income. If your meals, lodging and other travel expenses equal 10 percent or more of your income, you may want to reconsider how much you’re expensing.
Be smart about per diem deduction: If you prefer to deduct lodging and meals on a per diem amount as allowed by the IRS, make careful note of where you were and when you were there. This helps you avoid the usually low, general per diem amount allowed by the IRS. Hotels and meals are much more expensive, after all, in New York and San Francisco than they are in Hagerstown, Md., right? “I was able to generate more than $25,000 in per diem expenses for a client this way,” Rosenberg says. “Using the client’s own incomplete records, the deduction would have been less than $12,000.”
