Recordkeeping for a mixed business/personal trip

[Michael Plaks]

This is a partial FAQ for a very complex topic that has a lot of possible twists and complications. Maybe it will trigger a discussion leading to a more complete FAQ.

Here is a scenario. Harry goes on a weeklong trip for his real estate business. Leaves on Monday morning, spends Mon-Fri on business projects, stays for the weekend for a little fun, returns home on Sunday. We assume that the trip is legitimately "primarily for business purposes." 

Let's discuss how Harry should pay for his expenses. And we assume that Harry keeps separate accounts and credit cards for business and for personal, as any investor must.

1. Travel tickets

The trip is domestic and primarily for business, so his travel is 100% deductible. Charge it on the business credit card. No issues.

2. Lodging

Should be divided between business and personal. Subject to some debate, he probably has 5 business nights and 1 personal night on Saturday. (The IRS might suggest 4 and 2.) Yes, there's a sandwich loophole if he stayed thru Monday and did some business on Monday, but this post is about bookkeeping, not tax strategies.

For bookkeeping purposes, it's clearly impractical to split the hotel or AirBnB bill. I suggest to pay the full bill with corporate credit card, and then reimburse the company for the personal night, as described below under #9 - Reimbursements.

3. Incidentals like cash tips

They are deductible. I suggest taking a reasonable amount of cash out of his business account as "petty cash" ahead of the trip and keep track of the actual spending via some app. Reasonable is the key word here. As a general principle, the less you use cash, the better.

4. Meals 

Within reasonable limits, travel meals are deductible, including drinks and tips. Charge them on the business card and keep receipts for backup. The weekend meals are considered personal, however, and would not count - again, subject to some debate as to where exactly is the line between business and personal. 

What do you do with these personal meals? You can do as I suggested for the personal hotel night: reimburse your company afterwards. However, it is simpler to not even charge personal meals on business. Once the business part of your trip is over, switch to using your personal card.

5. Meals - the per diem alternative

If you eat frugally, you may be better off with the per diem allowance. Depending on where you go, the daily per diem rate varies. $56 for Detroit, $61 for Houston, $76 for Denver. So, instead of keeping track of actual meals and saving receipts, you can deduct the per diem. On the days of arrival and departure, you take 3/4 of the daily allowance.

If you go with per diem, charge all meals on your personal card, and then have the company pay you the per diem rate in cash after (or before) the trip.

6. Renting a car

Rental fees and gas are deductible and should be charged on the business card. The weekend driving, however, is personal and non-deductible. Should be prorated and reimbursed by you to the company, similar to the Saturday hotel stay.

Important: no mileage deduction for a rental car. Just the rental fees and gas.

7. Driving your own car

For this trip, Harry should use the same deduction method as he uses for the rest of the year: either mileage allowance or actual expenses. No special rules just because he is driving out of town. Keep track of miles, regardless of which method he uses. In addition, keep track of gas receipts if he uses the actual expenses method.

Whichever method Harry uses, automobile expenses such as gas should always be paid from personal money. The company issues reimbursements, based either on mileage or on a percentage of actual expenses. Never a combination of the two, at least not for the same vehicle.

8. Bringing your SO along

What about Meghan? Well, if she is a legitimate business partner of Harry and doing actual work on this trip, then we have two business people traveling, and everything is deductible. More often than not, Meghan does not contribute to the business besides the emotional support and criticizing his parking.

Meghan's portion of the expenses does not count then, it is personal. Calculating her portion could be tricky though. What if Meghan dines on steaks and aged Cabernet while Harry prefers salads and Iced Tea? You can split the restaurant bills maybe, but what about the hotel? The IRS suggests that if a single room costs $199 and Harry rented a double for $299, only $199 is deductible. As Winnie the Pooh would exclaim - Oh Bother!

Split whatever you can split. On everything else, assuming you did not split the bills and somehow figured out Meghan's portion, pay the full bill from the business and reimburse the company later on.

9. Reimbursements

There are two kinds of reimbursements: from the company to you and from you to the company.

From the company to you is very common. It happens whenever you pay for business expenses personally, and the company reimburses you. The most typical reimbursements of this kind are business mileage, business use of a personal cell phone and home office. Any deductible business travel expenses that you paid personally are in this group. To do it properly, you need to set up a formal accountable plan, which is another topic.

From you to the company is rare. It happens when the company paid for your personal expenses, which actually should not happen and makes you look sloppy. I did suggest this route for some of the travel expenses, but it should only be your Option B. Your Option A is to split the bills and pay personal from personal.

Of course, any reimbursement should be based on a detailed written report. Most expense tracking apps will produce such reports for you.

10. Unreimbursed business expenses

Can't you just deduct expenses paid personally and avoid this reimbursement mess? Maybe. It depends on your business setup. You can do it if you're a sole proprietor (no entities), if you have a single-member disregarded LLC or if you have a partnership, but partnerships require special formalities set up in advance.

Even if you could avoid reimbursements, it is really cleaner to do them anyway. If you're ever audited, it will go much smoother, and you will not need to have your personal bank and credit accounts searched by the IRS.

11. Whenever not sure...

Use this simple mental exercise. Imagine you work for a large corporation, and you're sent on a business trip, with a company credit card in your pocket. Assuming that the company checks your spending and your reports and you're not cheating - how would you handle this specific expense? Apply the same answer/procedure to a business travel for your own business - and you should be fine.