Demystifying the Do’s and Do Not’s of Business Travel

In the post-pandemic world, travel is more expensive than ever. But as a practice owner, you do not need to cancel travel plans . If you map out your trip and keep excellent expense records, the tax deductions related to the practice travel can make it more affordable.

You have many reasons to travel for business including dental conferences, continuing education and traveling to Bend for the JNG Advisors Bootcamp. By understanding the complex and rigid IRS rules, you can enjoy your next trip while also racking up bonus miles and tax savings.

ORDINARY AND NECESSARY

The first rule of business travel is that the trip must be “ordinary and necessary”. The IRS has failed to given definitive guidelines or definitions to these terms so you have some discretion in defining a business trip. This also means that a you will need to document why a trip is necessary. For example, a dental conference in Phoenix is clearly necessary. But is a team trip to Montreal necessary if the same business could be conducted in the break room?

WHAT IS DEDUCTIBLE

Once you have established that your business trip is “ordinary and necessary”, here is a list of the deductible travel expenses that you can take during your trip:

Travel by airplane, train, bus or car between your home to your business destination. Please note, this is not applicable to the daily commute between your home and your practice.
If you drive your personally owned car on a business trip, you can reimburse yourself at the current mileage rates. Read this blog post for more on Maximizing Your Auto Deduction.
Taxi/Uber fares for travel to and from your hotel and other business destinations during your trip.
Additional luggage fees required to transport baggage or other business related material to/from your business destination.
Lodging and meals during your trip.
Dry cleaning and laundry during your trip.
Business calls and communication. This can include everything from use of the hotel business services to an upgraded international cell plan.
Tips paid for services related to any of these expenses.

WHAT IS NOT DEDUCTIBLE

As you can see, this broad list covers almost every cost you will incur during your travels. So what is NOT included as a deductible expense:

Entertainment. The IRS always deems entertainment to be non-deductible. So if you hit the golf course or take in a concert during your business trip, that will be considered a non-deductible personal cost.
Cost related to an accompanying spouse or dependent, if that individual is not an employee or owner of the practice with a necessary reason to be on the trip.

DOCUMENTING THE TRIP

Now that you understand what your practice can pay for during a necessary business trip, you need to understand how you ensure deductibility in the eyes of the IRS. Since the burden of proof in tax law is on the taxpayer, it come down to one simple phrase: WRITE IT DOWN.

Before leaving for your trip, take the time to document the purpose of the trip and have a plan to record your deductible expenses.

Before you leave or maybe even when you book your trip, take a moment to document the business reason for the trip. It’s important to also note that the IRS guidelines state, “Travel expenses for conventions are deductible if you can show that your attendance benefits your trade or business.” This means you need to have an explanation on how the trip will help your practice make money.

Proper documentation can be time intensive, but don’t wait until after you return home. Documenting as you go during the trip (with the use of the our HubDoc app) is best. To maintain adequate tax records, receipts need to include:

amount of the expense (including tip)
the time and place of the expense
the business purpose of the expense
the business relationship with the attendees

The first two are easy as they are included on almost every receipt so before getting up from the table just jot down who your were with and what was discussed.

INTERNATIONAL BUSINESS TRAVEL

The rules above all apply to business travel within the North America. The rules become far stricter when a convention or CE course is held outside North America.

First, there must be a distinct business reason for traveling outside of North America. If the same convention or CE course is held within North America, the trip will be deemed unnecessary and therefore, non-deductible. Additionally, if you take some days abroad to enjoy your destination personally (ie - a scuba dive trip with your buddies), you will have to allocate a portion of your travel costs as personal expenses unless you can met all four of the following requirements:

The foreign travel does not exceed one week (Pretty short for a trip abroad).
Non-business time is less than 25% of the total time spent on the foreign trip (Reasonable if you are at an implant class in Switzerland).
Personal vacation is not a major consideration to make the trip (The CE course should be the focus).
The taxpayer could not and did not exercise substantial control over arranging the trip abroad (This one is near impossible to get around as you as the practice owner control the trip planning even if you have an agent put together the details).

Traveling for the Practice