Business Travel Expenses

Business travel expenses claimed on tax returns often send up a red flag to the IRS and trigger audits. There is nothing to be afraid of though if your records with trips details are adequate and contemporaneous. What does it mean? You are required to organize and keep all business trips expenses at the time you incur them to be able to prove how each trip is related to your business. For example, your correspondence about an upcoming business meeting with your potential customer or vendor with dates and reasons to meet, printed ads and reservations for a seminar you participated in, a detailed description of the exhibition you attended to explore the innovations in your business sphere etc. Good records are essential. Here is one illustration of possible outcomes of having poor records (taken from AIPB resources):

The case: A real estate consultant and broker worked as an independent contractor. He deducted a significant amount of travel expenses on his Schedule C. The IRS denied most of the travel expense deductions.

Held: For the IRS. The taxpayer provided three separate travel logs—but all three were created after the tax dispute began. The first log was constructed from memory after the IRS’s assessment. The second was created after the taxpayer went through his bank and credit card statements and receipts. The third log was not explained.

The court said none of the logs contained any data that connected the expenses incurred to the taxpayer’s work. Nor was there substantiation of the clients involved, business topics discussed, or anything else related to the taxpayer’s work. He also conceded that he had made personal as well as business trips and provided no basis on which to separate the two.

Also, because the travel logs were created after the IRS began examining the tax returns, the taxpayer did not meet the requirement to keep adequate and contemporaneous records of his travel expenses as they were incurred. [Franklin v. Comm., T.C. Memo. 2020-127]

So, keep this in mind every time you plan your business trip.