As a freelancer and a business owner, I’m always looking for ways to operate more efficiently. One of the best ways to operate in a cost-efficient manner is to pay attention to possible tax deductions. Being able to reduce your tax bill can go a long way toward help you improve your financial situation.
However, before you start claiming anything and everything on your taxes before the end of the year, it’s important plan it out and prepare for the best results.
One of my favorite things to do when I visit a new place — even if I’m on vacation — is to meet up with other bloggers. It’s fun to talk shop and get another perspective on your business. Plus, it’s a good way to deduct the cost of some of your food. Here’s what you need to know about planning those business lunches and dinners as tax deductions:
- Only deduct 50% of the meal: You can’t actually deduct the entire cost of the meal when you eat out, even if it is for business purposes. So keep that in mind.
- You have to talk business: In order to deduct that 50% of the cost, you need to make sure that you conduct business. You can be making a decision, conducting some sort of business or engaging in some other discussion that relates to the way you run your business.
- Keep good records: Finally, make sure you keep a good record of the meal. You need to have a clear accounting of the date, who you ate lunch and what you talked about. A recent lunch I enjoyed with another blogger included talk about my plans for improving my podcast, as well as monetization tips.
- You need a receipt: I like to make my notes on my receipts. That keeps everything easily accessible. The IRS doesn’t require a receipt for a meal that cost less than $75, but I keep it anyway because I make notations on the receipts.
Understand that just eating lunch out rather than brown-bagging it doesn’t count. You’re not getting any tax deductions for your lunch break.
One of my favorite things to do is travel to conferences to meet with other business owners and learn how to improve my websites, freelancing abilities and podcasts. It’s an amazing way to improve my business — and it’s also a good source of tax deductions.
As with the business meals, though, you need to be careful. Make sure that if you mix business with pleasure, you keep things separate. You can deduct the cost of your hotel room for the days you are attending the conference, but if you stay an extra two nights after the conference to see the sites, those hotel costs aren’t deductible. Also, if you bring your family along, you can deduct your own costs, but you can’t deduct the cost of your tag-a-longs. So, you might be able to deduct your airfare, but you won’t be able to deduct the cost of your spouse’s airfare.
You can deduct the costs of your airfare, ground transportation, hotel, dry cleaning, conference registration and a portion of your meals. As always, though, make sure you keep good records. Your good records will protect you in the event of a tax audit.
As you do more with your business, networking and taking advantage of the learning opportunities offered by business meals and conferences, you can offset a portion of your costs with tax deductions. It’s not a dollar for dollar reduction in your taxes, but it does help ease the pain a little, and make your overall business more efficient.