Don't let travel expenses tax your sense of reason

If you're among the thousands of people who will spend this balmy spring Sunday rushing to file 1999 income tax returns before tomorrow's midnight deadline, here's a piece of last-minute advice on deducting the costs of travel.

Make sure you know what's legal and what's not.

The basic rule of thumb as defined by the IRS is relatively straightforward. Travel costs are deductible if they "are ordinary and necessary expenses that you pay while traveling away from home for your business, profession or job."

Sounds simple, yet legions of tax lawyers and accountants make very good livings wrestling with the fine distinctions.

To qualify as completely deductible, travel expenses must meet several vague and often arcane requirements. To complicate the issue, deductible travel costs are limited to those expenses incurred as a direct result of the trip, but not those that the traveler might normally have incurred at home. Frequently, only a portion of certain expenses can be deducted.

In general, most public transportation, overnight accommodation and other necessary out-of-pocket expenses for business can be completely written off, as long as the expense is not "lavish or extravagant" and the taxpayer is able to substantiate the expense, how it was paid, and its business purpose.

There is, however, a daily limit on how much a taxpayer can deduct for travel on ocean liners, cruise ships, and other forms of "luxury" water travel. The limit is twice the total standard federal per-diem rate. Depending on the month last year, that ranged between $562 and $482 per day.

On the other hand, if you can demonstrate that you were able to qualify for a cheaper restricted air fare on a business trip by staying over a Friday and Saturday night, you can generally deduct meals and accommodations for those extra nonbusiness days, up to the cost of a similar airline ticket if it was purchased on a non-restricted basis.

Expenses for automobile travel are calculated on a standard mileage allowance. To complicate matters, 1999 happened to be a split year. Travel before March 31was figured at 32.5 cents per mile, and 31 cents a mile after that. If, however, the actual auto expenses divided by the total business miles exceed the standard deduction, a taxpayer can claim the larger amount. In either case, however, it's important to keep a daily log of how those business miles accumulated as well as the business purpose of the trip.

Depending on the circumstances, other deductible travel costs include baggage charges, tips on eligible expenses, cleaning and laundry, taxi fares, telephone and fax expenses.

The IRS can now require taxpayers to produce receipts or proof of purchase for all claimed expenses in excess of $75. That's why it's always important to keep hotel bills, auto rentals, as well as the receipt copy of your air ticket, and be prepared to provide proof of how those expenses were paid. A good way to establish the business purpose is to keep copies of correspondence with clients and professional contacts.

Travelers may also be able to deduct certain expenses incurred on trips looking for a new job in their present trade or business, but not if they're looking for a job in a different field. Other travel expenses may be deductible under certain circumstances. They include those incurred to take doctor-ordered medical treatment, and travel expenses to consult with an investment broker or to do investment research.

Expenses to attend meetings, trade shows, conventions and conferences in the U.S. are generally OK, while expenses to attend similar events in foreign countries are always more problematic and require considerable documentation.

There's a similar proviso for business travel for events held on cruise ships. For example, a taxpayer can deduct up to $2,000 per year to attend meetings on a cruise ship, as long as the vessel is registered in the United States and all of its port calls are in the United States or its possessions. The same event held on a nonqualifying ship may not be deductible at all.

Also generally not deductible are costs for travel taken for purely educational purposes, even if the trip relates directly to your work or business.

Foreign travel is also treated differently. If the trip is purely for business purposes, all expenses to get to and from your destination are fully deductible. But if you spent part of your time while away on personal activities, the situation is more complicated.

Unless you were away for a week or less, were away for more than a week but spent less than 25 percent of the time on personal activities, or able to establish that a personal vacation was not the primary motivation for the trip, you'll have to allocate your travel expenses in proportion to the time you spent on business and the time you spent on vacation.

Food and entertainment costs are other complicated issues.

Costs incurred on the road in this country are subject to the same 50 percent deduction limitations as if the expense was incurred at home.

Instead of keeping records of meal expenses and deducting that cost, however, travelers can also choose a standard meal allowance for each day they were away. The downside of this approach is that standard allowances can be quite low. They range from $30 to $46 per day for travel in the United States, depending on the particular location. The General Services Administration also publishes standard per diem food rates for areas outside the United States.

Travel expenses for an accompanying spouse or companion are another gray area.

Usually, travel expenses for a spouse are deductible only if he or she is an employee of the taxpayer and is fulfilling a legitimate business function on the trip. But you can claim more than 50 percent of some bills. If, for example, you stay in a hotel, you may write off the normal room rate for a single, even though you use it on a double basis.

All this sounds complicated because it is complicated. But if you understand and follow the basic rules and keep good records, travel deductions can take a big chunk from your income tax liability. Since the final determination usually only comes during an audit, travelers can be aggressive or cautious in their claims.

But remember, although the IRS isn't doing as many audits as it has in the past, deductions on travel are one of those red flag areas to which they tend to pay special attention.

And this final travel tax tip: this year try to organize your travel expenses after each trip. Few things are as maddening as searching for year-old restaurant receipts with that midnight deadline staring you in the face.

For last-minute tax instructions, visit www.irs.ustreas.gov/prod/.