VITA: 01/17/09
VITA: 01/17/09
Lesson 22: Business Travel
Lesson 22: Business Travel
Expense
Expense
Winter 2008
Winter 2008
Kristina Shroyer
Kristina Shroyer
Lesson 22: Business Travel
Expenses
Introduction
We just discussed itemized deductions
Look at line 21 of the Miscellaneous Deductions Subject to 2% part
of the Schedule A
♦
It is titled "Unreimbursed Employee Expenses"
We talked in the Schedule A lesson about some of these
unreimbursed employee expenses such as union dues
This idea of Unreimbursed Employee Expenses can get more
complicated and does have additional rules associated with it
In this lesson we're going to talk about deductible business travel
expenses, how they're reported on a return and what can be
deducted
♦
Also note line 21 says "Attach form 2106 if Required"
We'll discuss what form 2106 is and how to use it
In this lesson we'll talk about deducting ordinary and necessary
business travel expenses a taxpayer may have both in general and
in regard to Schedule A
♦
Some business travel expenses: entertainment, gifts,
transportation…etc.
♦
By ordinary we just mean an expense that is common and accepted
in the taxpayer's field or profession
Lesson 22: Business Travel
Expenses
What qualifies as a deductible business travel
expense?
Deductible travel expenses are any expenses that are ordinary
(typical for the profession) and necessary for the taxpayer's job
Deductible travel expenses can NOT include any personal expenses
♦
This means NO expenses for the taxpayer's family are deductible
♦
Only expenses incurred while conducting business are deductible
See page 22-1 from some examples of deductible business travel
expenses
♦
let's look at them
Meals and Entertainment (if deductible) is generally only 50%
deductible
♦
Regarding
transportation
Lodging and overnight travel away from the taxpayer's
tax home
is
deductible
commuting to and from work is NOT deductible
traveling to a client's is deductible
A taxpayer's
tax home
is their main place of business – it does not
matter where the taxpayer lives or their family resides
♦
Expenses for travel away from one's tax home for a period of
temporary employment are deductible but only for one year
Lesson 22: Business Travel
Expenses
What is eligible for home leave?
Home leave
is when a United states Foreign Service employee is basically
ordered to take a 18 month leave of absence after completion of a certain
amount of service
Since the home leave is ordered and required by law, members of the
foreign service on home leave are allowed to deduct:
♦
amounts paid for travel, meals, and lodging while on home leave as an
employee business expense
Taxpayers eligible for this will deduct their expenses in the same way
employees deducting business expenses away from home do
♦
On Form 2106
♦
Just as with regular business expenses, any amounts paid on behalf of the
taxpayer's family are NOT deductible
Look at the example on page 22-2
Are reimbursements reported?
Yes any travel expenses that are deductable should be offset by
reimbursements received.
♦
The amount the deductable travel expenses exceed reimbursements by will
be the deduction
♦
Any excess reimbursements will be taxable income
Lesson 22: Business Travel
Expenses
What records must the taxpayer have?
It is essential that the taxpayer keep records of their
business travel expenses
♦
This include records for meals (unless standard meal
allowance is used), entertainment, gifts, or the use of
an automobile or other property like a cell phone
The records must document:
♦
time of expense
♦
place of expense
♦
amount of expense
♦
business purpose of expense
♦
business relationship (for entertainment and gifts)
General rule
♦
taxpayer needs receipts for all lodging expenses and
for any other expenses in excess of $75
Lesson 22: Business Travel
Expenses
Alternative Ways of Figuring some expenses (other
than actual)
1.
Vehicle Expense can be reported using the actual expense method
OR the standard mileage rate
2.
Meals and incidental expenses can be reported by using the actual
amounts or a standard amount can be used
Vehicle Expenses
vehicle expenses:
expenses incurred when taxpayers use their
vehicles for business purposes
♦
Remember we already said commuting expenses are not deductible
♦
If a taxpayer has qualified vehicle expenses you'll have to fill out a form
2106 and report them in Part II
Two methods for figuring Vehicle Expenses
♦
Actual Expense Method
This is out of the VITA scope – bases the deduction on a variety of
expenses and allocates them out according to business use
♦
Standard Mileage Method
This method multiplies the number of miles the taxpayer drove for
business by a standard rate per mile
The 2008 mileage rate(s) are shown in the table on page 22-3
Taxpayers can only use this method is they meet ONE of the
requirements shown o page 22-3 (let's read them)
So first determine if the taxpayer can use this method and then
determine the deduction
Lesson 22: Business Travel
Expenses
Vehicle Expenses (continued)
If a taxpayer reports vehicle expenses (no matter which method is used),
they must complete the General Information section in Part II of Form 2106
♦
Let's Look at it
The back up records required is the same as the other business expenses
we discussed
Meals and Incidental Expenses
Meals and Entertainment expenses are always figured separately from the
other business travel expenses
♦
They are multiplied by a rate of 50% for must taxpayers (so only ½
deductible)
and by a rate of 80% for certain taxpayers subject to the Department of
Transportation's service hours
you will almost always use 50%, see the tip
Meals and Incidental Expenses can be reported in two ways
1.
Taxpayers can report
actual expenses
and then reduce them by the
applicable percentage
2.
Taxpayers may report a
standard amount
to claim meals and entertainment
or incidental expenses
Records are required as specified earlier no matter what method is used
Exercises page 22-4
Lesson 22: Business Travel
Expenses
Reporting Business Travel Expense
Reported on Form 2106 of Form 2106-EZ
♦
The result is reported on Schedule A as a Miscellaneous
Itemized Deduction Subject to 2%
Look at line 21 of Schedule A
First determine if a taxpayer must file a Form
2106
Look at the Form 2106 Instructions (download from IRS
website – I did, let's look)
Questions are on Page 1 (let's go through them)
Next determine if the taxpayer is eligible to file
From 2106-EZ
Requirements are on page 22-5 (let's read them)
The requirements are also at the top of the Form 2106-EZ
Lesson 22: Business Travel
Expenses
Form 2106
(the EZ is on page 201 of your Publication 4491-W)
Part I - Calculates total Travel Expenses
♦
Column A – lists all travel expenses except meals and entertainment
♦
Column B – lists meals and entertainment expense (do NOT multiply by 50% -
this is done in step 3 of the process)
Part 2 – Calculates Vehicle Expenses
♦
Section A – General Information about vehicle
The placed in service date is the date the vehicle began being used for business
♦
Section B – for taxpayers who use the standard mileage rate (for VITA all
taxpayers will use this for vehicles or be out of scope)
♦
Section C and D – out of scope (for actual expense method)
Three Steps to the 2106
Step 1: Complete for all taxpayers required to use the 2106
Step 2: Complete only if the employer reimbursed the taxpayer and the
reimbursement is not included in the Employee's W-2
Step 3: Figure the expenses to deduct on Schedule A
♦
Subtract the reimbursement from the expenses
♦
Calculate meals and entertainment expense (50% or 80% multiplication)
♦
Determine the total deduction to be entered on Schedule A
Let's look at the 2106 EZ also