Note: Tax rules are complex and filled with hair-splitting nuance. The information shared in our travel articles is my experienced & common-sense interpretation of the IRS phrase, Facts and Circumstances. Our goal is to help you maximize your travel deduction while steering clear of IRS scrutiny.
If you've been following our business travel deduction series, you know that maximizing your deduction and working-vacation pleasure is an entirely doable challenge. In part one, we discussed the Four Tests that business travel must meet to get deducted. In part two, I shared the Definition of a Business Day and the planning-magic that makes weekends, holidays, and even pleasure-filled weekdays business days. Part three was all about which trip costs get deducted. In this, our final travel article, I'll provide tips on substantiating your travel deduction. All of these articles come from our Real Estate Agent Tax-Cut Library, designed to help you cut your most significant expense: Taxes!
Three Keys to Substantiating Your Deduction
There are three keys to proving that your tax deduction for a business trip is legit. First, you must show that you took the trip for business. Second, prove the majority of your destination time was for business, not something else. And, finally, you need records to show that the amounts deducted are correct and trip-related.
Key One - Business Purpose:
The critical key to substantiating your travel deduction is proving the primary reason for the trip was business. You must show that the activities conducted were necessary, beneficial, or helpful in generating a profit. You don't have to show sales or gains produced by the trip. Still, you need to explain the business motivation behind it and show you were serious about its potential benefits. To this end, it's a good idea to keep any documents that may support your position, such as:
As you can see, the goal here is overarching – the big picture. The more the trip may resemble a vacation, the more critical showing your business purpose. Showing business purpose is relatively easy for a seminar on real estate sales contracts when your attendance is required five hours per day. Proving business purpose and meaningful attendance for a hot tub trade show in Las Vegas may be a bit more challenging. But, a few ounces of enthusiastic documentation can go a long way to selling its benefit to your real estate practice.
Key Two - Business Days:
The second key to substantiating business travel is proving that over half of your destination days are business days, (see maximizing business days article). The easiest way to maximize business days and leisure time is to 1) Understand how weekends, holidays, and sandwich days can become business days, 2) Plan business accordingly, and 3) Document business activity conducted on business days.
A simple method for documenting business activity is a schedule or itinerary for each business day and supporting evidence that the events occurred. This proof can take many forms:
Key Three – Dollars Spent:
Proving Key One and Key Two are essential for deducting travel as a business expense. If these are not proven, none of your travel expenses get expensed - only direct business costs such as business meals or seminar fees.
Once you establish a business purpose and business days, the next requirement is to prove how you spent the amounts deducted. You must also show that each expense is yours or a fellow business travelers' and related to travel (not personal or for entertainment). For more information on tracking expenses, please check out our article Easy Recordkeeping for Real Estate Agents. Here's some advice to help you prove your travel-related expenses.
Summary and Invite: This closes our series of articles on deducting domestic travel expenses. We hope they have helped you too better understand deductible travel. Most importantly, we hope they help you plan some tax-saving recreational trips, and confidently substantiate your deductions. If you'd like some assistance in cutting a Real Estate Agent's highest cost - taxes, please download our Real Estate Agent Tax Organizer. We also invite you to review and purchase our Real Estate Agent Tax-Cut Library - over eight hours of tax-cut training broken into twenty-nine searchable volumes. It covers every possible deduction a Real Estate Agent can take on their business tax return. Our Broker Version helps entire agencies cut their taxes! And don't forget to browse our courses. You might find something you like!
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
I just completed the 1099-NEC/MISC course - this was very helpful to me. It is greatly appreciated.- Tammy L, Anchorage, AK, 1099-NEC & 1099-MISC Course (Training Edition) Course
This course package is thorough and will give you a solid handle on how to optimize your business expenses to minimize your taxes and keep appropriate records to handle any IRS challenges. Only want to dive into a particular topic? Jump to that video and scan forward to where your issue is addressed. Or watch the whole series to learn it all!- Josh, Charles Town, WV, Real Estate Agent Tax-Cut Library, Agent Edition Course
The 1120-H course is the second course that I’ve taken and both classes have been very informative and helpful. The courses have been easy to follow along with and if I have a question they are quick to get back to me and help me understand the issue. I would highly recommend OvernightAccountant classes.- George, York, PA, 1120-H Basics Course
I haven’t practiced in the accounting field in quite some time and wanted a refresher. The Overnight Account course 1099-Misc Basics was very helpful! It was simple to follow along and understand each section. I would highly recommend this course! Staff were quick to answer my question as well. I love that I can review the modules again, if needed, at any time. I will definitely be using them again for more classes.- Tammy, Anchorage, AK, 1099-MISC Basics (Training Edition) Course
I haven’t practiced in the accounting field in quite some time and wanted a refresher. The Overnight Account course 1099-Misc Basics was very helpful! It was simple to follow along and understand each section. I would highly recommend this course! Staff were quick to answer my question as well. I love that I can review the modules again, if needed, at any time. I will definitely be using them again for more classes.- Tammy, Anchorage, AK, 1099-MISC Basics Course