The Internal Revenue Code provides the laws that govern the reporting of federal income tax. For those with a farming business, the code includes sections on farming-related income and expenses. One such section, which is the subject of this article, includes travel expenses related to farming businesses.
This article is the tenth in a series on deductible business expenses associated with a farming business. The previous articles on deductible expenses covered Prepaid Farm Supplies, Prepaid Livestock Feed, Hired Labor, Interest, Taxes, Insurance, Rent and Leasing, Business Use of Your Home, and Truck and Car Expenses.
You can deduct ordinary and necessary expenses related to traveling away from home for your farming business. You cannot deduct expenses considered to be extravagant or lavish, which are expenses beyond that which is necessary and that a reasonable person would spend.
The physical location where you primarily conduct your farming business is considered your home for travel calculations related to deductions. You are considered to be traveling away from your home when:
- Your responsibilities require you to be away from your farming business longer than is normal for a work day, and
- You must sleep or otherwise rest to meet the demands placed on you by your farming business work while away from your home.
You must meet both of the above requirements and be able to prove the time, location, and business purpose of your travel to deduct the ordinary and necessary expenses related to the travel. Ordinary and necessary travel expenses typically include but may not be limited to the following:
- Dry cleaning and laundry
- Telephone and fax
- Transportation by bus, car, plane, or rail
- Transportation between your hotel and temporary work location
- Tips related to any of the above expenses
You can deduct 50% of your ordinary expenses for business-related meals. Deductible business-related meals must occur while you are traveling and your trip is long enough to require you to sleep overnight or to otherwise rest in order to perform your work.
You cannot deduct the cost of meals that are not necessary for your rest and recovery, unless the meals qualify as business entertainment. Entertainment typically includes any activity generally considered to provide entertainment, amusement, or recreation to you customers or clients.
The cost of a meal includes the amount you spend on food, beverages, taxes, and tips. You are permitted to deduct 50% of this total cost or 50% of a standard meal allowance provided for your daily meal and incidental expenses.
You must maintain sufficient records or other evidence to prove your travel-related deductions. Estimated or approximate amounts do not qualify as proof of a business expense.
You should maintain your records in a ledge or similar type of record. You should maintain support for the entries in this ledge, such as original receipts, that support the details of each expense. Evidence of travel expenses is typically most reliable if it is obtained at the time the travel occurs.
If you elect to deduct a standard meal allowance rather than actual expenses, you do not have to maintain records of the actual amounts you spent on meals. However, you must still maintain records related to other travel expenses, including the time, location, and purpose of your travel.
Reimbursement to Employees for Expenses
You can typically deduct the amount of expense reimbursements paid to employees for their travel expenses related to your business. There are two types of employee expense reimbursement:
- Accountable plan – one where the employee must provide evidence of the expenses incurred
- Nonaccountable plan – one where the employees do not need to provide evidence of expenses incurred
If you provide expense reimbursements to an employee under an accountable plan, you can deduct the expense reimbursements as travel expenses. If you provide expense reimbursements under a nonaccountable plan, you must report the expense reimbursements as wages on Form W-2 and deduct them as wages.
How can I get more help on income and expenses related to my farming business?
You can get the help you need by speaking with a tax attorney. A tax attorney is someone who uses their training on tax laws to help their clients legally maximize their refund.
If you call the telephone number at the top of this web site or complete the form below, a tax attorney will get in touch with you to answer your questions and begin providing you the help you need. The first consultation with a tax attorney is completely free of charge, confidential, and does not obligate you to anything further.
Therefore, please get the help you need today by getting in touch with a tax attorney.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.