In order to take advantage of travel expenses, one of the major deductions for entrepreneurs, you need to understand the difference between your personal home and tax home. And also, you should know the difference between business travel and business transportation.
So, before we give you the four tips for travel expenses, let’s quickly go over a few definitions:
Personal Home – This is your place of residence, where you live.
Tax Home – This is your place of business, where you work.
Business Travel – When you are away from your tax home overnight, you are in tax deductible travel status
Business Transportation – You may deduct business transportation costs when going from one tax deductible business destination to another (whether in town or overnight)
With that said, here are 4 tips on how to get the most out of travel related deductions:
- Try to have your personal home within 50 miles of your tax home
- If your personal home is within 50 miles of your tax home, use the home office deduction under the administrative rules to eliminate commuting to your outside-the-home office.
- Deduct overnight business expenses when you travel outside the area of your tax home
- If you have more than one business, overnight travel from your principle business to a secondary business is deductible. Your principle business is the one where you spend the most time and make the most money.
Depending on the location and nature of your business, you may be able to save a significant amount of money due to these travel deductions. Work with your tax accountant to determine the best way to keep track and organize your travel data.