What is considered a business expense on a business trip?
Scenario: I own my own business (LLC). There is a business-related conference that I wish to attend that requires travel. I assume airfare, cabs, hotel and conference tickets are all obvious expenses that I can use my American Express Business card on. But what about meals? Can I expense meals? What are other things can and cannot be expensed?
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The IRS clearly states that for businesses to claim deduction on trips, the travel’s primary purpose should be for business. You can claim mileage, travel costs, per diems under tax deductions. The standard allowable rate of mileage and per diem also varies from state to state and the IRS updates the rate annually. To know exactly how much can you save on tax deductions, you can use a per diem calculator.
The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct.
Travel
Taxpayers who travel away from home on business may deduct related
expenses, including the cost of reaching their destination, the cost
of lodging and meals and other ordinary and necessary expenses.
Taxpayers are considered “traveling away from home” if their duties
require them to be away from home substantially longer than an
ordinary day’s work and they need to sleep or rest to meet the demands
of their work. The actual cost of meals and incidental expenses may be
deducted or the taxpayer may use a standard meal allowance and reduced
record keeping requirements. Regardless of the method used, meal
deductions are generally limited to 50 percent as stated earlier.
Only actual costs for lodging may be claimed as an expense and
receipts must be kept for documentation. Expenses must be reasonable
and appropriate; deductions for extravagant expenses are not
allowable. More information is available in Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
Entertainment
Expenses for entertaining clients, customers or employees may be
deducted if they are both ordinary and necessary and meet one of the
following tests:
Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted
during the activity and the taxpayer had more than a general
expectation of getting income or some other specific business benefit
at some future time.
Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly
before or after a substantial business discussion.
Publication 463 provides more extensive explanation of these tests as
well as other limitations and requirements for deducting entertainment
expenses.
Gifts
Taxpayers may deduct some or all of the cost of gifts given in the
course of their trade or business. In general, the deduction is
limited to for gifts given directly or indirectly to any one
person during the tax year. More discussion of the rules and
limitations can be found in Publication 463.
If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes.
Edit for Meal Expenses:
Amount of standard meal allowance. The standard meal allowance is
the federal M&IE rate. For travel in 2010, the rate for most small
localities in the United States is a day.
Source IRS P463
Alternately you could reimburse at a per diem rate
The general principle is that expenses that would have been incurred without the job are not deductible. If you wouldn't have otherwise gone to the city, then the plane tickets are deductible. For lodging, you do normally have housing expenses, but hotels tend to be more expensive, plus you probably still have to pay rent/mortgage at your residence, so the hotel is an additional expense rather than a replacement of a regular expense. Meals are where it gets complicated, as you would have had to eat anyway, but meals on the road tend to be more expensive, so while the entire cost isn't an additional expense, some of it is. The IRS has settled on letting you deduct some of the cost of meals, with the cap being 50%.
There's been some discussion on a further point in the comments, and I think it should be put in an answer: Technically, you can charge anything you want to the business card, you just have to consider anything you charge that isn't deductible to be income. However, it's still legitimate to ask what is deductible in deciding what to charge, in that it is a good idea to keep the accounts separate, as the accounting gets messy otherwise. And if you have a credit card that's labelled as being a business card that's being used for personal expenses, that can raise red flags.
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