By Charisse Jones, USA TODAY
If you own a small business, chances are you've got enough to think about.
But the deadline to file taxes is just around the corner, and knowing what business travel and entertainment expenses you can and can't deduct is critical so you don't pay the IRS more than you should, lose a legitimate write-off because you can't document it or risk an audit because your expenses went overboard.
"I always tell people, for taxes, it's the difference between what you earn and what you keep," says Barbara Weltman, a tax expert who advises small businesses. "You could earn a significant amount of money, but if you don't take legitimate deductions, then you're paying more taxes then you need to."
The truth is, you can write off everything from that suit you had dry cleaned on a business trip to the fax you sent from the hotel, as long as you have the records to back it up.
"Record keeping is so crucial," says Frank Degen, an agent licensed by the IRS to work with taxpayers and who's based in Setauket, N.Y. "You need to have records of the four 'P's' and a 'D,' and the four 'P's' are the person, the place, the purpose and the price, and the 'D' is the date. That's an easy way for business owners or self-employed people to remember what they need to do."
Proof of an expense could include receipts, canceled checks or a computer or written log. The records don't have to be submitted with the return, tax experts say. But you'll need them if you get audited.
"If you're deducting things and not keeping proper records, and you get audited, you could lose those deductions even if they are valid business expenses," says Jennifer Rempe, an analyst at The Tax Institute at H&R Block.
Receipts a must for entertainment
Though it's always a good idea to hold on to receipts, they are specifically required for a meal or business entertainment expense that is $75 or more, tax experts say. Weltman says receipts are also required for lodging.
"Travel and entertainment is unique, because the law spells out what kind of information you need to record," she says.
Business owners can write off 50% of business meals — including the tax and tip — and entertainment. Or, when they're away from home overnight on business, they can claim a daily meal allowance. From Jan. 1, 2009, through Sept. 30, that amount was $39. It increased to $46 from Oct. 1 through the end of last year. The allowance may be higher in some cities.
Though small businesses fill out different forms depending on whether they're sole proprietors, incorporated or partnerships, the deductions for travel and entertainment are generally the same, experts say.
When away from home overnight for work, they can "deduct ordinary and necessary expenses," says Rempe. That includes 100% of domestic travel costs, including air, train or bus fare.
You can write off cabs that ferry you where you're visiting
for business. Did you ship your suitcases or props for a presentation? That's a write-off. So are tolls, parking and Internet access at the hotel. Even your tip to the bell hop is a deduction.
You can also write off the mileage you put on your personal car when conducting business. But you must keep a written log and be careful not to count miles racked up on non-work-related excursions. Your commute to the office also doesn't count.
"It's very important. whenever you go on a business trip, that you jot down in a calendar when you left, what the mileage was when you left and what it was when you returned," says Nancy Colvin, another agent licensed by the IRS who's based in Winston-Salem, N.C. and works with many sole proprietors.
You can even deduct 50% of the price of baseball tickets for you and a client, as long as business was discussed right before or after the game, showing that the outing was "directly related or associated" with work.
But don't go overboard. Don't get a luxury hotel's presidential suite at a conference, rent a stretch SUV or order a $500 Bordeaux for you and a client and expect to write it off.
"You're not allowed to deduct meals that are lavish or extravagant," says Weltman. "There's no dollar amount. But you have to use some common sense relative to the kind of income your business does.
"That applies to all of your business expenses," she says. "I don't know what (the IRS') audit triggers are. but certainly once expenses are more than a certain portion of the revenue the business is taking in, it could raise eyebrows."
Help available all year
Also, be careful when you take family and tack a vacation onto your business trip. Unless your spouse is there for work, you cannot write off his or her airfare. And lodging and other individual expenses are no longer deductible once the trip switches from business to sightseeing.
"You can only deduct the expenses for yourself, your travel, your meals for the days you actually conduct business," Rempe says. "Once you end your business and that trip becomes pleasure, none of those expenses should be deducted on your tax return."
If you hand out business presents, you can usually write off a maximum of $25 per recipient.
There are various tools to help small-business owners navigate the maze of possible deductions and rules, tax experts say. Software programs such as TurboTax can be a guide. The IRS website is a resource, and H&R Block has a 24-hour talk line that taxpayers can call for free advice. They can also e-mail questions to firstname.lastname@example.org .
You can talk to a tax professional all year, not just at tax time.
"You should demand. that your accountant help you stay informed," Weltman says. "The accountant isn't just there to prepare your taxes, but really should be an adviser to your business, to let you know what's new and what strategies you should be using."