Don't overlook these!
Updated for 2012
1) Ordinary and Necessary Expenses:
An ordinary expense is an expense that is common and accepted in your type of business.
A necessary expense is an expense that is helpful and appropriate in your business. To be considered a necessary expense it does not have to be required.
2) Tax Home Defined:
When the IRS says you must be away from home to deduct business-related travel expenses, they are referring to your so-called tax home. This may or may not be where you maintain your permanent residence.
Your tax home is your regular (fixed) place of business, employment, or post of duty, including the entire city or general area of your regular (fixed) place of business.
For travel expense purposes the IRS says:
Your residence may be your tax home if...
You are self-employed:
Your residence is your tax home.
This means your transportation costs from your home to client locations and back home are deductible; they are not considered commuting expenses, which are generally not deductible.
You are an employee:
Your tax home is San Diego because it is your regular place of business.
This means your costs for traveling between Phoenix and San Diego, lodging, and meals while there, are not deductible because they are considered personal expenses.
More than One Place of Business:
Your main business location is generally where you spend most of your time and earn most of your income and is generally considered your tax home.
To determine your main business location compare the time and income associated with each business location where you work.
Phoenix is your tax home because it is your main place of business. Consequently, when you are in San Diego you are away from home.
This means your round-trip travel costs between Phoenix and San Diego and lodging in San Diego are fully (100%) deductible.
However, your meal costs while in San Diego are only 50% deductible (including taxes and tips).
3) Transient (itinerant):
If you have no permanent residence and move from city to city to work, your tax home is wherever you are working at the time; you are considered an itinerant. This would apply to someone who travels around in a motor home or trailer for example, and lives in it while in the work area.
4) Away From Home Test:
To be away from home:
Overnight sleep rule: This rule, which requires that you get sufficient time off to get the property rest before returning home, prevents you from being able to deduct the cost of your meals on one-day business trips.
Sufficient time off to rest:
You meet the away from home test. Your transportation and lodging expenses are 100% deductible. However, only 50% of your meal costs are deductible.
Not sufficient time off to rest:
You do not meet the rest test since there was insufficient time to get the proper rest. You are not considered away from home. Your trip is a one-day business trip which means your meal expenses are not deductible.
Travel Expenses: Personal Expenses; Expenses of a Spouse, Dependent, or Other Individual
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