IRS has few surprises for business travelers

February 17, 1992|By Tom Belden | Tom Belden,Knight-Ridder News Service

Business travelers get off fairly easily this year in preparing their 1991 income-tax returns.

The most important change, and one that will affect a large number of taxpayers, is that the standard mileage rate for all driving on business is now 27 1/2 cents a mile, up from 26 cents in 1990. The rate increase reflects the rising cost of owning and operating a car.

Besides the mileage rate, there have been no other substantive changes in the past couple of years in the tax code governing travel expenses.

But there still are many people who would find it useful to spend an evening with the Internal Revenue Service's guide to individual income taxes, which explains in fairly plain English regulations governing auto and other travel expenses.

This is especially recommended for those who are self-employed, people who are required to travel to temporary locations to work, those who pay all or part of travel expenses out of their regular income or anyone who combines business trips with vacations.

The typical business traveler, one is who required to fully account to an employer for all travel expenses and is then fully reimbursed for all costs, doesn't have to worry at all about the impact of the expenses on a tax return. Since that type of traveler doesn't actually receive any of the expense money as income, he doesn't owe any taxes on it.

One well-established aspect of the IRS rules that could prove tricky, if you're dealing with it for the first time, involves someone who works in more than one place in a year and must determine where his "tax home" is. Generally speaking, a tax home is your usual or regular place of employment, or place of residence if you don't work in the same place all the time.

As an example of the way the regulations may apply, if you have to work away from your regular place of employment, or tax home, for a "fixed and reasonably short time," as the regulations say, then all of your travel expenses are deductible.

If your out-of-town assignment is for an indefinite period, the new location becomes your tax home, and no travel, meal or lodging expenses while you are there can be deducted.

The types of business-travel expenses that are deductible are well-known and logical: air, rail or auto transportation; taxi, bus and limo fares; lodging, meals, cleaning and laundry; telephone calls, and tips.

Some of the most detailed business-travel tax regulations involve deductions for meals.

The IRS, for instance, has decreed that you cannot deduct "lavish or extravagant" expenses for meals. But the agency then quickly backs off that order, saying that an expense isn't considered lavish or extravagant if it's "reasonable based on the facts and circumstances." And an expense won't be disallowed just because it's at a very elegant, expensive restaurant or resort. You just may have to prove that the cost was justified and necessary to conduct your business.

The amount that you can deduct for meals can be based on either 80 percent of the actual cost, if you have good records to back up the deduction, or on a standard daily allowance. The standard allowance is $26 a day but goes up to $34 a day for most U.S. metropolitan areas and other high-cost areas, including resort towns such as Vail and Keystone, Colo., Key West, Fla., Cape May, N.J., and Yosemite National Park, Calif.

There are a few surprises in the IRS table of locations that qualify for the $34-a-day allowance. Some larger cities, it turns out, including Pittsburgh, Cincinnati, Kansas City and San Antonio, apparently don't have high enough restaurant costs to qualify for the higher deduction.

Another area that can confuse travelers is trips that combine business and leisure. The IRS has been dealing with this subject for years and has gotten specific about how much of the cost can be deducted.

On a trip that is primarily a vacation, you can deduct only expenses at your destination that are business-related. Usually, you won't be allowed to deduct the cost of getting to or from your destination.

On trips that combine business with pleasure, a general rule to remember is that if you spend 25 percent or more of your time on non-business activities, your travel expense deductions may be limited.

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