VITA: 01/17/09
Lesson 22: Business Travel Expense
Winter 2008
Kristina Shroyer
Lesson 22: Business Travel Expenses
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Introduction
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We just discussed itemized deductions
Look at line 21 of the Miscellaneous Deductions Subject to 2% part of the
Schedule A
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It is titled "Unreimbursed Employee Expenses"
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Also note line 21 says "Attach form 2106 if Required"
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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
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
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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
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What qualifies as a deductible business travel expense?
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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
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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
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let's look at them
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Regarding transportation
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Meals and Entertainment (if deductible) is generally only 50% deductible
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
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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
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What is eligible for home leave?
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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:
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Taxpayers eligible for this will deduct their expenses in the same way employees
deducting business expenses away from home do
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amounts paid for travel, meals, and lodging while on home leave as an employee
business expense
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?
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Yes any travel expenses that are deductable should be offset by reimbursements
received.
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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
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What records must the taxpayer have?
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It is essential that the taxpayer keep records of their
business travel expenses
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The records must document:
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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
time of expense
place of expense
amount of expense
business purpose of expense
business relationship (for entertainment and gifts)
General rule
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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)
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Vehicle Expense can be reported using the actual expense method OR the
standard mileage rate
Meals and incidental expenses can be reported by using the actual amounts
or a standard amount can be used
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2.
Vehicle Expenses
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vehicle expenses: expenses incurred when taxpayers use their vehicles for
business purposes
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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
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Actual Expense Method
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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
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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)
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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
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Let's Look at it
The back up records required is the same as the other business expenses we
discussed
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Meals and Incidental Expenses
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Meals and Entertainment expenses are always figured separately from the other
business travel expenses
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They are multiplied by a rate of 50% for must taxpayers (so only ½ deductible)
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Meals and Incidental Expenses can be reported in two ways
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2.
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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
Taxpayers can report actual expenses and then reduce them by the applicable
percentage
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
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Reporting Business Travel Expense
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Reported on Form 2106 of Form 2106-EZ
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First determine if a taxpayer must file a Form 2106
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The result is reported on Schedule A as a Miscellaneous Itemized
Deduction Subject to 2%
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Look at line 21 of Schedule A
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
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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
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Form 2106 (the EZ is on page 201 of your Publication 4491-W)
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Part I - Calculates total Travel Expenses
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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
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Section A – General Information about vehicle
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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
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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
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The placed in service date is the date the vehicle began being used for business
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