Tax season can be a stressful time for small business owners. Gathering and organizing your financial records and navigating complex tax laws and regulations can feel burdensome when you’re already wearing multiple hats to keep your business moving forward. Ensuring your travel and employee expenses are accurately accounted for can strain your resources and impact your day-to-day operations.
Even though the 2023 tax season is over, it’s never too early to plan ahead. It helps to rely on the right tools and be aware of the available deductions you can take. If your employees travel for work throughout the year, there are several deductions for travel expenses that can help reduce your taxable income and save you money. To maximize your deductions and unlock more time for optimizing your strategy and more savings for your business in the coming tax year, follow these tried-and-true tips.
Keep Accurate Records Throughout the Year
A little ongoing organization and planning go a long way. It’s crucial to maintain receipts and records of your business travel expenses throughout the year so you can accurately deduct the costs for tax purposes (and so you don’t spend precious time in the days before taxes are due searching for all of your receipts).
The most efficient way to achieve this outcome is to use a quality employee travel and expense system that quickly and accurately captures the information you need. This system will help categorize your travel expenses for easier reference and ensure that each expense is substantiated with appropriate documentation.
Once you have a thorough reporting system in place, it’s a best practice to spot-check your expenses monthly, which all good systems can do simply and quickly by validating receipt capture and financial coding and ensuring the purpose of the expense has been captured to support your deduction claims.
Use Digital Tools to Streamline Tax Management
The world today moves incredibly fast. Decisions need to be made efficiently, and finances need to be balanced quickly and accurately to allow you to make faster and better spending decisions. This means that your small business expenses need to be tracked and reconciled promptly all year long. Transportation costs, baggage fees, car rentals, taxis, shuttles, lodging—all business travel expenses—add up quickly. Managing them manually costs time and money and leaves room for human error. The risk of errors is magnified when you’re working with finite resources, as small businesses often do.
A wide range of software and online tools are available to help small business owners streamline and manage travel spending more efficiently. These platforms offer helpful, intuitive features, such as automatic categorization, receipt scanning, and integration with payment providers like card issuers to streamline data entry and ensure accuracy. But to take your expense management to the next level, consider investing in an integrated budgeting, purchasing, travel, and expense management solution.
An all-in-one system will not only help you plan better but also track your business travel expenses throughout the year, using information from budgets, purchases, and booked trips to improve the accuracy of your expense transactions, reducing the valuable time you spend on data entry and mapping expenses to specific trips. They also provide insights into your business’s annual financial performance, enabling you to make more informed decisions and optimize your tax strategy for next year.
Stay Informed About the Latest Tax Laws and Regulations
Tax laws can change frequently, so staying up-to-date each year is important to ensure you comply with the eligible tax deductions to maximize your savings. To ensure you’re clear on which business travel expenses are and aren’t eligible, refer to the IRS’ tax guidelines for small businesses, which list all of the business tax deductions available.
According to the IRS guidelines, business travel expenses are tax deductible if they’re incurred while you’re away from home and your principal place of business. These expenses include transportation, baggage, car rentals, taxis, shuttles, lodging, service tips, and related fees. To qualify, expenses must be ordinary and necessary for your business, directly related to trade or business, and properly documented with receipts and records. Not all travel expenses can be claimed as deductions on your income taxes. Expenses incurred during a personal vacation aren’t deductible, even if some business activities are conducted during the trip, which is essential to remember when you add a leisure trip before or after your business trip.
By following these tips and taking advantage of digital tools to organize your yearly expenses in real-time and staying informed on current tax laws and regulations (and, of course, seeking professional guidance when necessary), you can streamline the process of itemizing deductions for travel-related expenses for your small business and potentially increase your tax savings. Most importantly, you can turn otherwise stressful tax preparation into an opportunity to refresh and optimize your financial strategy and set your business up for success in the year ahead.
Fiona Hastings is the VP and General Manager Neo1, American Express Global Business Travel.
Business travel stock image by GaudiLab/Shutterstock
