Tax Tips Blog

Seth writes: I work several times a year as an independent contractor for a company. I travel to various cities and deliver lectures. I receive a set fee for each lecture. In the past, I always submitted my receipts for my travel expenses and was reimbursed by the company. At year end, the only income ever reported to me on my 1099-Misc from this company was from the lecture fees. The money received for my reimbursement expenses was not reported. I was just been notified that this year the income I receive from reimbursed expenses will be reported on my 1099-Misc. Does this change in reporting mean that I will have to pay income taxes on this company’s reimbursement of meals since 50% of meals is not deductible? Thanks in advance for any help. Seth

My reply:Hello Seth and thanks for visiting.

Since you are an independent contractor being reimbursed by your client (the company), and if you adequately document those expenses to your client (the company), then you are not subject to the 50% limitation.

In this situation the 50% limit applies to your client (the company). You can read more about this in IRS Pub. 463, Travel, Entertainment, Gift and Car Expenses, www.irs.gov/pub/irs-pdf/p463.pdf.

Best wishes, Gina

Alice writes: hello, gina. i enjoy your clear, chatty, blog and think you are one of the few people who might know the answer to my question: i’m a successful freelance writer who is just about to start a blog that will involve heavy travel to various theater events around the country. While it is going to be hosted on a very popular, often-visited website in the field, it won’t be paid (I am doing it for higher name visibility). Will any or all of my travel expenses be tax-deductible? Would it matter if I could get the website to pay me some small nominal amount? Thanks!!!

My response:Hello Alice! Thanks for your kind comments about my blog. Congratulations on being a successful freelance writer! As to your question, you can deduct “ordinary and necessary” expenses you have when you travel away from home on business. You must be able to prove a real business purpose.

In trying to determine if your travel to various theater events around the country is for a real business purpose you might want to ask yourself the following questions:

1. What do you write about now?

2. Who are your current clients?

3. How many clients do you have now?

4. Have you been paid for this type of writing before?

5. Do you have a marketing plan that shows how you will increase your client base or profitability by going to these theater events?

If you do determine that the travel to these theater events are deductible, but you also stay around for a few extra days to enjoy the city you’re in, you may want to check out my article on “Deducting Your Vacation” as you may be able to deduct more than you think.

Thanks again and good luck,

Gina

Now that it’s summer I’m sure you’ve gotten together with friends and neighbor’s and at least one of them has bragged about being able to deduct their vacation. You probably just smiled and then either wondered if it was really legal or when the IRS was going to come knocking on their door.

Well, it is possible to legally deduct a business trip and the IRS doesn’t have a rule against having fun while on business. The important thing to remember is to properly document it.

In order to satisfy the IRS, you should make a business appointment before you leave for your trip. You can not just go on vacation and hand out your business card and expect the IRS to let you deduct your trip. You must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. So if you want to deduct your vacation, set up business appointment for each city or destination you plan to visit. If you have your own business you could look in the phonebook for possible new vendors in all the cities you plan to visit. Then send out postcards to each vendor saying that you’re coming to town and looking for new vendors and then interview those who respond to your postcard when you arrive in town. If you use this approach then you MUST keep one postcard for your files, the list of places you sent your postcard and copies of all correspondence with potential new vendors noting your appointment times, etc.

The second thing you needs to consider before you leave is that in order for your travel to qualify as “business travel” and thus be deductible, you have to be traveling for business. The IRS says you are traveling for business whenever you are sleeping overnight in a location that is not your home. For every day you are on business travel, you can deduct 100% of lodging, tips, shoe-shines, laundry and dry cleaning, car rentals, and 50% of your food. So if you spend three days meeting with potential vendors and you spend $50 a day for food, you can deduct 50% of this amount, or $25. According to the IRS, no receipts are required for any travel expense under $75 per expense. The only exception would be for lodging. You always need a receipt to prove lodging. But if you pay $6 for drinks an the plane, $6.95 for breakfast, $12.00 for lunch, $50 for dinner, you do not need receipts for anything since each item was under $75.

NOTE: It is extremely important to document all your expenses items. All expenses for traveling should be documented in a business log book. Not only are your on-the-road expenses deductible from your trip, but also all laundry and dry-cleaning costs for clothes worn on the trip. This means that your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

If you have a business day on Friday and another one on Monday, the IRS will allow you to deduct all on-the-road expenses during the weekend. So if you make at least one appointment on Friday and one on the following Monday, then even if you have no business on Saturday and Sunday (other than trying to enjoy your vacation), you may deduct on-the-road business expenses incurred during the weekend.

The IRS allows you to deduct transportation expenses if business was the primary purpose of your trip. This is determined based on how many days you conduct business on your trip. The majority of the days in the trip must be for business activities or you cannot make any transportation deductions. It’s all or none.

For example, let’s say you spend six days in San Diego. You leave early on Thursday morning. You have a business seminar on Friday and meet with potential new vendors on Monday and fly home on Tuesday, taking the last flight of the day home after playing a complete round of golf. All of these days would be considered business days. Thursday is a business day, since it includes traveling. It doesn’t matter if you do anything for pleasure as well. Friday is a business day because you attended a business seminar. Monday is a business day because you met with potential new vendors in prearranged appointments. Saturday and Sunday are sandwiched between business days, so they count. Tuesday is a travel day. So every day was deductible.

Using the same facts as the previous example you managed to accrued six business days. This means you could spend another five days having fun and still deduct all your transportation to San Diego. The reason is that the majority of the days would be business days (six out of eleven). However, you can only deduct six days worth of lodging, dry cleaning, shoe shines, and tips. The important point is that you would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible. With proper planning, you can deduct most of your vacations if you combine them with business.