Nancy Trejos for USA Today writes: African safaris. Drinks at strip clubs. Gifts for wives and children. Wine-tasting trips. An orthopedic "doughnut" cushion.
Accountants and other tax experts say they've seen it all when it comes to expenses business travelers try to deduct during tax season. Sometimes, they're legitimate. Often, they're not.
Philip Panitz, a tax litigator at Panitz & Kossoff in Westlake Village, Calif., once had a physician try to deduct his wife's snorkeling expenses in Hawaii while he was at a medical seminar.
"In his eyes, that was worthy of a deduction, because if it wasn't for the business trip, she wouldn't be there snorkeling," he says.
Not legitimate.
The deadline for filing your tax returns is six days away. As you do your last-minute filings, be aware there are certain business travel expenses you'd be surprised you can deduct and others you can't. Just be prepared to offer documentation — even in the form of handwritten notes — to back them up.
"Make sure to keep track of all receipts and records. The easiest and most efficient way is to write on the back of each slip the following: reason of the expense, name of the person you met, the location and date," says Paul Golden, spokesman for the National Endowment for Financial Education.
Each year, many people don't, yet still try to deduct as many of their business travel expenses as they can, tax experts say.
"A lot of people just really push the rules, and, actually, they don't even push the rules; they go over the line," says Scott Estill, a former IRS trial attorney and author ofTaxThis! An Insider's Guide to Standing Up to the IRS.
If you're an employee traveling for business and your company doesn't reimburse you for all your expenses, you can deduct any out-of-pocket expenses that exceed 2% of your adjusted gross income. If you're self-employed or a small-business owner, you don't have to reach that threshold.
Anything that relates to your business is fair game: airfare, gasoline for your car, baggage fees, taxis, lodging, meals, phone calls and supplies. You can even deduct your laundry service, dry cleaning and drinks at the bar.
But, says, Bob Meighan, lead certified public accountant for the American Tax and Financial Center at TurboTax, the IRS says your expenses have to be "ordinary and necessary."
That is, they're typical of your industry and necessary for your business. But even that guideline can yield confusion.
"It is a gray area, so you have some leeway to be aggressive, but it gives the IRS the ability to be aggressive in terms of denying it, too," Meighan says.
Javier Goldin, a certified public accountant and managing partner of Goldin Group in Bethesda, Md., says you basically have to prove you're trying to make money.
"You don't necessarily have to make money, but it has to have the intent of making money," he says.
Mixing business, pleasure
Business travelers beware: The IRS is particularly keen on watching your expenses.
"The IRS does look closely at business travel expenses, because there is a lot of room for manipulation, the most common method being grouping personal travel expenses in with business travel expenses," says Mark Minassian, a certified public accountant at Minassian Associates in Waltham, Mass.
To make your entire trip deductible, the primary purpose has to be business rather than pleasure, says Gail Rosen, a certified public accountant in Martinsville, N.J. But you can take some personal time.
Let's say you fly to Florida on a Monday with your spouse and take Tuesday as a vacation day. On Wednesday, you meet with a client, and on Thursday, you have lunch with that client, then you catch a flight home.
Monday, your travel day, plus Wednesday and Thursday count as business days, Rosen says. But not Tuesday. You can deduct your airfare but not your spouse's, and you can deduct your hotel room for any night but Monday, plus half of your client meals.
Goldin says there's nothing wrong with mixing business with pleasure as long as you're clear about it. Deduct only your business expenses. Don't try to pass off that lunch your daughter had at Disneyland as a business expense.
"We oftentimes travel with mixed intentions or multiple intentions that are not clear," he says. "If you understand what the law says, and you plan it properly ahead of time, and you document what you did and what you learned, then things will probably work out."
Conventions and conferences can be a sticking point. You can deduct your expenses if the convention is in North America and the Caribbean if you can prove they are directly related to your trade or profession. But try to attend a convention in Rome, and the IRS will ask why you couldn't get the same benefit from going to a convention in, say, Cleveland.
"The IRS does check the nature of conventions, seminars, etc., carefully to make sure they are not vacations in disguise," Rosen says.
Keep all convention-related materials, she says. When it comes to family, tread carefully.
"I've seen it where people take their family and kids, and call their kids employees," Estill says. "There's a lot of abuse there."
What is and isn't deductible
There's a lot you can write off. Panitz says if you're attending a seminar and there's a sponsored excursion, such as a side trip to a winery or a balloon ride, that will hold up as a business deduction. But it must be substantiated as a business experience. Keep the brochure that lists it, Panitz says.
"Typical proof is that the seminar or continuing education activity has the excursion listed as a networking meet-and-greet on the brochure," he says. "A brochure is good proof of it being a sponsored event."
The owners of a dairy business once went on an African safari and wrote it off because they said the research of wild animals was necessary for their business. The IRS approved it, Meighan says.
Some USA TODAY Road Warriors, who combined log millions of miles a year for business, have been surprised at what they've been able to write off, though none went as far as taking a safari.
Bill Johnson of Bloomingdale, Ill., once deducted 100-dozen golf balls that he bought during a trip for an executive golf meeting because his boss forgot to buy them. "I had to bang on doors trying to get someone to sell me these," he says.
He kept meticulous records of the purchase and any other expenses while traveling for work.
He's never been audited by the IRS, but he says he and others have been questioned. He's known people to be audited for having questionable items.
"I have been questioned about individual items, however never a full-blown audit," he says. "Yet, some of my staff have been in the past, as I didn't catch a dollar figure not in line with policy."
Phil Bush, a strategic sales planner in Atlanta, once got to deduct a hat to fly into Canada. But he kept a record of it, as he does with all business travel expenses.
"My e-mail system reminds me of where I have gone, and that way the expenses kind of get put in the right bucket," he says.
Penalties are serious if you can't substantiate your claim. You could lose the deduction and end up having to pay the tax, plus interest and a penalty. If, after recalculation, it turns out you understated your tax liability by 10% or $5,000, whichever is greater, you could get slapped with a 20% understatement penalty. Then there's the sheer stress of it all.
When the IRS finds one discrepancy, "they wonder what else on this return is personal expenses and bogus deductions," Estill says. "They start digging. And it's hard when they start digging to get them to stop."
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