The rules of deduction for veterinary travel and auto use
Learn how to record your business travel expenses correctly to avoid an audit-or survive one if you're targeted.
Expenses related to automobile use, travel, meals, and lodging are the four most abused types of deductions when people file their tax returns. That's why the government scrutinizes these areas when conducting audits, causing honest taxpayers like you stress and frustration. But that doesn't mean you shouldn't take these deductions—just that you must document very carefully. The following travel costs are deductible for out-of-town business trips:
> cab rides to and from the airport
> car rental
> meals (including personal meals but, as with all deductible meals, only 50 percent of the cost is allowed)
> dry cleaning
> phone calls
> computer and Web access costs.
Remember that you can't deduct meal or lodging expenses that are "lavish or extravagant"—a phrase that basically means "unreasonable." Personal entertainment costs on business trips aren't deductible either. Make sure you keep every last one of your receipts or use the daily allowance rates provided by the government.
MIXING BUSINESS WITH PLEASURE
What happens if you take a trip that's for both business and pleasure? If you fly to a location for three days of business meetings and stay for a few days of vacation, you can deduct only the cost of your business meals, business lodging, and so on. You can't deduct costs incurred on personal vacation days. If the trip is primarily focused on business, your travel cost can be deducted in its entirety and no personal allocation is required. But if the trip is primarily personal, none of the travel costs are deductible. To determine if the trip is primarily business or primarily personal, all you have to do is count up the number of hours spent on each and compare.
SAVE YOUR RECEIPTS
If the purpose of the trip is to attend a conference, the IRS checks the nature of the meetings carefully to make sure they're not vacations in disguise. Save all receipts that prove your trip was for business purposes. Be aware that deducting your spouse's costs if he or she accompanies you is potentially problematic. Keep in mind that no deductions are allowed unless your spouse is your employee or your practice's and his or her travel is also business-related.
KEEP AN AUTO LOG
When it comes to auto-related deductions, keep an auto log to record the date, number of miles traveled, and reason for each trip. If you don't, it's risky to deduct the expense because you won't be able to substantiate the claim if you're audited. You'll be answering questions like, "Do you have a written record to support your deduction?" If you answer "yes" and then can't produce the record during an audit, you lose credibility. The IRS agent will wonder what other deductions you were untruthful about. You'll also report total vehicle mileage for the year on the tax return, so take an odometer reading at the beginning and the end of the year.
Tax returns with large deductions relative to reported income become targets for audits. Always Refer to your tax advisor for guidance—you can never be too safe.
Gary Glassman, CPA, a Veterinary Economics Editorial Advisory Board member, is a partner with Burzenski & Co. PC in East Haven, Conn., and specializes in veterinary accounting and tax planning.