The first few months of every year have people focusing on tax credits, tax breaks, tax deductions, and refunds. There is a tendency for people to cringe at the idea that the government may actually want to give you a fair shake when it comes to paying your fair share of taxes, but at least in one area this actually happens to be the case.
That area is travel expenses, and as you read on you will discover that there are a number of deductions you can take that you either thought would get you audited by the IRS (an event nobody wants to have take place in their part of the world) or get rejected and require you to do the whole tax thing all over again. Remember that deductions are different than credits, with deductions reducing the final number you have to report for the amount of taxable income.
Here is a long list of expenses you can deduct from your taxes as long as you can prove they are business related:
- Car expenses
- Train and airfare tickets, plus any baggage fees you incur
- Taxi, subway, and bus
- Real estate and educational meetings
- Overnight lodging
- Meals (remember this is a deduction which you can only claim 50% of on your return)
Many businesses are aware of these deductions, but the key is how to use them as loopholes that are wide open for the savvy real estate investor and owner. Be careful that you have detailed documentation to support your deduction claims, but other than that you should have no problem.
The underlying idea behind the loophole deduction is to connect business and family travel and have them treated as one for the purposes of income taxes. This is best illustrated by example.
An investor has several real estate investment properties around the country, some of which are in the same geographical area as his family. He also has several personal vacation real estate retreats he uses throughout the year. Each time he travels to any one of these locations and performs a qualifying and verifiable business event the majority of his travel expenses are eligible for deductions. If he decides to stop in and visit the family for a few days during this trip whose primary purpose is business, this does not disqualify him from taking the travel expense deduction.
Of the above list, car expenses are one that most often occurs during these trips. If you are traveling to visit your existing rental properties, attending a real estate conference or a conference related to real estate, or seeking out new potential investments, getting to and from these places can be tax deductible even if you stop in along the way to visit family members in the area. There is no apparent restriction on the length of time you can stay, just as long as the purpose is real estate-related.
The cost for attending those business meetings related to your real estate holdings are also deductible. The meals are too, but only 50 % of the total which is restricted by IRS guidelines. If during your family business trip you need to stay over, you need to look into all the deductions that go with staying for a day or two in a local hotel.
- Room service
- Valet parking
- Dry cleaning
While it might be cheaper to stay with family, that might not be your first choice. You can then add these deductions to your tax schedule and potentially save a lot of money. Make sure you get receipts for everything. Also, keeping a detailed record of your planned travels and your actual travel route will be very helpful in providing supportive evidence on your tax return.
There are hundreds of investors who own income producing real estate properties in a number of locations around the country and are missing out on saving potentially thousands of dollars because they believe the tax code regulations on travel expenses are too restrictive. But the reality is that these deductions are not new for 2018 but have been available for years. If you have sufficient documentation from previous years about your travels to properties that are near your extended family, there may be opportunity to amend your returns and get back some money.