If you're a work at home mom or anyone who's freelancing, self-employed or 1099 contracted, you will want to know about claiming travel expenses. There are some legitimate travel expenses that you can usually put on your annual tax return, and though taxes are different for everyone, some general guidelines might help you minimize your small business tax bill in April.
1. Choose Car Costs or Mileage
Generally speaking, the IRS allows self-employed or freelance workers to deduct either for the mileage they drive for business, or the gasoline and maintenance costs for their business vehicle. For most people, one or the other of these ends up being a better deal. Your determination might also depend on how much you use a specific vehicle for business.
2. Dedicate a Business Vehicle
No matter how you calculate your taxes, it helps to use a specific vehicle for business, rather than just claiming business mileage for whatever you happen to be driving. Having an assigned business vehicle helps with the greater principle of more documentation for your travel expense accounting.
3. Track Mileage
No matter how annoying it is, lots of tax professionals strongly recommend that you keep some kind of record of your business mileage. In some cases, this can be as informal as a new book with beginning and ending odometer readings. Sometimes, it's helpful to have a spreadsheet-generated form with areas for reporting mileage, business purpose, etc. Find a way that works for you and stick to it to have a viable record of business miles traveled at the end of the year.
4. Keep Receipts
When you go through tolls, or even when you do other business stuff like faxing, you'll want to keep all of the paper receipts for accurately recording your travel costs. Having the paper trail can help out a lot at tax time, or later, when the IRS wants to see your records. Professionals recommend having seven years of business receipts handy. This applies to your travel mileage, as well as receipts for lodging, travel meals, entertaining clients, and any other business expenses you incur on the road.
Having an itemized travel expense record is better than just having one lump sum total in your ledger. The reason is because tax analysts can more easily look at what all of your different costs were. Itemized records paint a much better picture of your small business activity, and can help you out a lot if you ever have your records audited.
All of the above can help you rest easier about your own record-keeping for travel expenses or small business. Good record-keeping is a big part of being successful in a smaller startup work at home business or other similar venture. In fact, at any level of growth, the imperative of good tax accounting applies to your business, so be sure to think about this issue, not just in April, but throughout the year.