On the road again: Business owners
had better stop to figure travel expenses
By Cora M. Barnhart • Bankrate.com

Sept. 23, 1999 -- This isn't rocket science, whether you travel by plane, train or automobile: If you own a small business, the business portion of your travel is deductible.

Any taxpayer who uses a vehicle in a business can deduct the costs of operating and maintaining that vehicle.

The IRS allows taxpayers to deduct expenses incurred when driving from one workplace to another within the "tax home area." What's that? Generally, the IRS perceives a tax home as the taxpayer's regular place of business, regardless of where he locates his family home. The tax home area includes the entire city or general area in which the business is located.

Business owners can't deduct the costs of driving a vehicle between a home and a regular workplace. These costs are personal commuting expenses. However, as the tax tip on strategies for home offices explains, business owners can convert commuting costs to travel expenses if they maintain a qualified home office. While expenses from commuting between home and work aren't tax-deductible, expenses for travel between different job locations is deductible. A home office transforms a home into a job location. Going back and forth between the home office and any other workplace becomes deductible business travel instead of commuting.

Personal vehicle expenses
When you use your personal car for business, you gain a batch of deductions -- as long as you can maintain a heap of records. If you can keep track of all the ways you spend on your car, plus keep track of the percentage of business use, you can smile on April 15.

The deductions? There are plenty: depreciation, lease payments, gas and oil, tires, repairs, tune-ups, insurance and registration fees. But you had better start keeping a pen, a notebook and an envelope for receipts, because you're going to have to document every dime spent and every mile driven for a business purpose.

The division between business and personal use matters because the IRS realizes that vehicles are used for both. They expect the taxpayer to distinguish personal expenses for the car from business expenses. The tax forms will require you to calculate the actual cost of business use and you'll only be able to deduct that portion.

You'll need to add up all the receipts at the end of the tax year, and then claim that portion devoted to business use.

If that seems like a hassle, there is another way to skin this cat. An earlier tax tip describes an easier way to take this deduction: Keep track the business mileage, and then take a deduction based on a standard mileage rate.

Working the percentages
It's done by figuring a percentage of business miles driven. Many self-employed people use this method.

Suppose the sole proprietor of a flower shop drives her van 20,000 miles during the year. If 16,000 miles are for delivering flowers to customers and 4,000 miles are for personal use, four out of five miles are deductible business travel: 80 percent.

Taxpayers who decide to base their deductions this way need to use the standard mileage rate announced by the IRS. For 1998, the standard mileage rate for a car was 32.5 cents for each business mile not reimbursed in some other fashion.

For our flower shop owner, that would mean a deduction of 16,000 times $0.325, or $5,200.

Self-employed taxpayers should also remember that there are additional automobile expenses that are deductible. The IRS allows self-employed workers to deduct the business part of interest on their car loan, state and local personal property tax on the car, parking fees and tolls. Taxpayers can take this deduction whether they have claimed the standard mileage rate or not.

Trains, planes and hotels
In addition to driving expenses, business owners should also make sure they are claiming any travel expenses that qualify as deductions.

The IRS enforces two requirements before such expenses can be deducted:

• A business person must be required by work to be away from the tax home more than one ordinary work day.
• The duties conducted while away from home require the business person to get some sleep.

Travel deductions
That done, it is time to check out exactly what is and isn't deductible on a business trip. Many business owners realize they can deduct travel expenses between their home and business destination, including air, bus and railroad tickets.

They should also remember to deduct the cost of transportation between the airport or station and the hotel, or between the hotel and the work location away from home. This is also no time to be hampered by heavy baggage. The costs of sending parcels and display materials between regular and temporary work locations are deductible as well.

Our final tips
Hotels render substantial expenses for a business traveler, but many of these can be deducted, including lodging costs for overnight business trips. The same holds true for the cost of food, beverages, taxes and related tips. However, in most cases, travelers can deduct only 50 percent of these expenses.

Travelers may also deduct dry cleaning and laundry expenses while away from home overnight, and the costs of business calls while on a business trip. This includes the costs of using a fax machine or other communication devices.

Finally, if there is ever a time where it pays to be generous in business, this is it. Tips associated with the business expenses described above can be deducted.

-- Posted Sept. 23, 1999