From my perspective, travel is one of the most underutilized tax deductions by small-business owners today. I try to make all of my travel a business write-off by following a few simple rules. Unlike meals and entertainment, which are predominately limited by 50 percent, travel expenses are 100 percent deductible. Travel expenses include:
1. Hold the annual company meeting. If you have a corporation, this would be your board of directors meeting and shareholders meeting. If you have an LLC, elect a board of advisors to assist the manager or managers of the company. This is an excellent opportunity to discuss the company’s operations over the past year: profits, losses, acquisitions, new ventures and goal-setting. Listen to the advice of your board members and make plans for the following year.
2. Visit a client. Wherever you are traveling, is there a customer or client in the area? Could you cultivate a new relationship or strengthen a current one? Schedule meetings each day you are traveling, at least for a few hours, and keep notes of what you accomplish and why the meeting was important.
3. Visit a vendor. Is there a vendor or supplier, subcontractor or affiliate you could meet with where grandma or grandpa lives? Could you negotiate new pricing, tour a facility or talk about networking and how you could work more closely together? The tax write-off may even be simply a bonus when you consider the business that you could generate with a strategic meeting that ultimately would boost your revenue.
4. Attend a conference or workshop. Look at possible workshops in the local area where you are visiting. Consider tax, legal, business, marketing website, SEO, customer relationship or technical training or classes based on your type of business. At the very least, visit a local real estate or investment club meeting if possible. The training could be fantastic and justify a great write-off to boot.
5. Check on your rental property. I’ve said it time and time again. At least consider and/or attempt to purchase rentals where you travel. More specifically, could you buy rentals where extended family members live? Have them help manage your properties or simply work on them while you are visiting. Sometimes, it’s a great excuse to get out of family functions to have to leave and work on the “rental” — just saying.
The list goes on and on. It just doesn’t make sense for any business owner not to have at least some travel expenses. With all of these strategies or reasons for business travel, make sure that you are doing substantive business on each day you aren’t traveling and keep records of what you are doing, whom you are meeting with and how it relates to your business.
YEAR END TIP: Plan your holiday trips accordingly and incorporate one of the five reasons above into your travel plans.
As usual, the more money you make in your business, the more opportunity you have to be aggressive and take a larger deduction. Don’t get greedy. Keep your receipts and records, and discuss the expenses with your CPA at the end of the year in order to report a well-balanced tax return. As I have said many times before, “Pigs get fat and hogs get slaughtered.”
Every holiday meal has the potential to be a dining expense. Meals are another highly underutilized expense by small-business owners and should be a healthy line item on your tax return. However, many don’t realize how creative and detailed they need to be in order to maximize this write-off.
We truly can and should involve more business discussions in our dining engagements. Why not have a business discussion during your holiday meals with people that are working with you in your business, whether they are family or not?
Here are three options for writing off dining that should get your creative juices flowing and tantalize your taste buds:
Option 1: Dining with others (limited by 50 percent). This holiday season, make sure to incorporate food into some of your year-end meetings with partners, vendors or customers. If you’re talking business, you can deduct up to 50 percent of the dining costs. Why not consider having some of those important meetings over dinner during the holidays and take a write-off? Have you held this year’s board of directors or board of advisors meeting yet? Go to dinner and take some good notes, called “annual minutes.”
Option 2: Office drinks and treats (no percentage limitation). Don’t forget to document all of those sodas in the fridge, the water cooler, doughnuts or bagels on Fridays, the coffee and tea in the kitchen, etc. Any food you buy for the office to provide convenient snacks your employees (not the owners or their families) is 100 percent deductible. The reasoning for this special rule from the courts and the IRS is that these items will help your employees be more productive and stay in the work place, rather than leave the premises for a drink or a snack.
YEAR END TIP: Stock up on snacks and drinks in the office for 2017. Purchase them before year-end and get the write-off in 2016.
Option 3: Lunch or company party at the office with employees (no percentage limitation). Recent tax court cases and IRS rulings have only further substantiated this powerful tax deduction. Make sure your accountant doesn’t put the company party on the “dining” line that is typically subject to the 50 percent cut. These food expenses are a 100 percent write-off!
The important consideration with this strategy, in order to comply, is that the majority of the attendees to the party are bonafide employees and not owners or their family members. For those you with substantive businesses and payroll, this could be an excellent deduction to take advantage of during the holidays.
YEAR END TIP: Have your company holiday party catered rather than take the employees out to lunch.
All of these items can add up to be a significant expense on your tax return. Keep good track of these expenses and set up several categories in your QuickBooks to organize the variations that can occur among these items. If you don’t track them, you’ll have nothing to discuss at tax-prep time. We can always whittle down a deduction if it’s too high, but it’s much harder to dig one up.
Bottom line: Travel and dining during the holidays can be a fantastic tax deduction and a great impetus to have productive meetings with your board of directors, vendors and employees to make plans for the New Year.
The NEBDG Blog, by our Tax & Legal instructor Mark J. Kohler, is "The Real Estate Investment Conversation You Can Rely On." Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the books “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com. Let us know if there is a topic you would like to discuss!