Business Expenses

Deducting Travel Expenses When You Use Public Transit

If you use your personal vehicle for business purposes – except for commuting! – you may qualify to deduct the mileage that you travel. But what happens if you take public transit to meet clients or attend business functions? If you are self-employed, that cost is also a business deduction.

(Note that I will be discussing travel within your hometown – i.e., those who live in larger cities and regularly use public transit to get around. If you are in a different city for business and use their public transit system, that would also be a deduction. However, the options below – getting a separate transit card or managing your travel online – may not apply. Just be sure to keep all receipts and document your business travel as always!)

Trips on public transit are easily overlooked by entrepreneurs – but it adds up! The key to deducting trips by public transit is documentation. Often, if a transit system uses a refillable card system, people maintain only one. While this makes sense in saving space in your wallet, this can lead to a messy co-mingling of business and personal expenses.

Option 1: Get a second transit card to use just for business trips

Many transit systems allow people to obtain more than one travel card. If you can do this, get a separate one to use whenever you are using the public transit system for business. Have it set up to deduct or reload from your business bank account.

Pros: Easier to keep business and personal transit expenses separate.

Cons: Can be annoying to maintain and you may end up accidentally mixing up the cards if they are not clearly labeled.

Option 2: Use one transit card and document

Many refillable transit cards have a website you can use to add money to your card or manage your trips. In some cases, this site also documents all past trips and allows you to download a travel history in csv or Excel. This download, combined with your business calendar, will show when you used the transit card for business.

Pros: Only one transit card to maintain.

Cons: Requires time to download travel history from transit card website.

Regardless of which method you choose to maintain your transit cards, be sure to keep records of where you were going and why. Often your business calendar will contain those details. When tracking these expenses in your bookkeeping system, label them as “travel”.

Can I Deduct my Coffee? Understanding the Meals & Entertainment Deduction

One of the most common questions I get pertains to doing work in coffee shops. Many entrepreneurs head to their local coffee place to meet clients, do work, or just get out of the house. Is that coffee deductible?

Well, it depends.

Were you meeting with clients or potential clients? 

Meeting with clients is an common business activity for freelancers, and a lot of those meetings take place in coffee shops. The IRS requires “substantial business discussion” at the meeting, and chatting with a client will almost always meet that threshold – you are there to convince them to hire you, after all.

Answer: Deductible!

Were you networking with other professionals in your industry?

Networking can be an important way to grow your business and further your connections in your field. Grabbing coffee can often lead to new information about your industry or new clients. Remember that the IRS requires that “substantial business discussion” took place, so you’ll want to make sure you participated in the meeting for specific business benefit. It helps to record who you met with so you can substantiate the expense if needed.

Answer: Most likely deductible!

Were you traveling?

If you were away from home overnight for work purposes, you most likely qualify to deduct your meals – including that morning coffee.

Answer: Most likely deductible!

Were you at a local client site?

If you were in your home town, just working from a different location that your normal office, the IRS does not allow you to deduct that morning coffee or afternoon lunch expense. Why not? Well, you were probably going to eat lunch anyway, right? If you are in your home town you could have made coffee at home or brown-bagged your lunch.

However, if you are eating with the clients or other freelancers on the project, see the info above about meeting with clients and networking!

Answer: Probably not deductible!

Were you there just to use the wi-fi or get out of your house?

While we all need to get out of the house sometimes, there was no real business need for you to head to Starbucks, so the coffee’s on you.

Answer: Not deductible!

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