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May 17, 2018

Deductible Business Travel Expenses for Sole Proprietors


Travel photo

As tax attorneys in Columbus, Ohio, Nardone Limited routinely advises sole proprietors on when a taxpayer may deduct certain business expenses on Schedule C of their Form 1040 U.S. Individual Income Tax Return. Many sole proprietors seek to maximize their business expense deductions; however, sole proprietors must be cognizant of what may and may not be deducted to potentially avoid further scrutiny by Revenue Agents during Internal Revenue Service (“IRS”) audits and examinations. When the IRS audits or examines a tax return, one of the items the Revenue Agent will scrutinize and look for is deductions relating to business travel expenses.  This is the first article of a series which addresses deductible travel expenses for sole proprietors. Specifically, this article provides an overview of the travel business expenses that are generally deductible on Schedule C of the Form 1040. Future articles in this series will describe the deductibility of transportation, lodging, and meal expenses, and the deductibility of spouse and family member travel expenses.

General Requirements for Deducting Business Travel Expenses

Many sole proprietors and their employees travel for business. Thus, sole proprietors must consider whether the expenses relating to the travel are in fact deductible. Generally, for federal income tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Further, when a sole proprietor’s business provides an advance, reimbursement, or allowance for expenses relating to travel for business away from home, the sole proprietor may deduct the related travel expenses. See IRS Publication 535, Business Expenses § 11 (2016). A person travels away from home when he is away from the general area of his tax home for substantially longer than an ordinary day’s work and needs to sleep or rest to meet the demands of the work. See IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses §1 (2016). A tax home is the person’s regular place of business or post of duty and includes both the entire city and general area in which the business or work is located. Accordingly, the daily cost of commuting to and from work is not a deductible travel expense. Treas. Reg. §§ 1.262-1(b)(5); 1.162–2(e).

Trip Must be Primarily for Business Purposes

When a trip combines both business and personal activities, then a taxpayer may only deduct travel expenses if the trip is primarily for a business purpose. Treas. Reg. §1.162–2(b)(1). If the trip is primarily personal in nature, then travel expenses are not deductible, even if the taxpayer conducts some business activities during the trip. Further, a taxpayer may deduct travel expenses that are reasonable and necessary in conducting business and are directly attributable to conducting business. Treas. Reg. §1.162–2(a).

Ordinary and Necessary Expenses

A sole proprietor must also consider whether the travel expenses are ordinary and necessary. An ordinary business expense is common and accepted in the industry; while a necessary business expense is one that is helpful and appropriate for the trade or business. IRS Publication 535, Business Expenses § 11 (2016). Ultimately, on a business trip, ordinary and necessary traveling expenses, such as transportation fares, lodging, meals, and related incidental expenses, are deductible. 26 C.F.R. § 1.162–2. When deducting within the IRS statutory and regulatory guidelines, sole proprietors may deduct 100% of transportation expenses, 100% of lodging expenses, and 50% of meal expenses that are incurred while traveling away from home for business. We will be following up with additional articles regarding deductible transportation, lodging, and meals travel expenses, and deductible spouse and family member travel expenses.

Conclusion

Nardone Limited routinely represents individuals and businesses in federal tax matters, including taxpayers who are subjected to an IRS audit or examination by a Revenue Agent. If you are facing an IRS tax audit or examination, or if you wish to learn more about how to adequately maintain your records, contact one of our experienced tax attorneys today.

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May 17, 2018

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