Question

Business owners, especially owners of small or closely held businesses, often make expenditures that are motivated by both business and personal activities. These mixed-motive expenditures are of concern to the IRS.

Explain why the IRS is concerned about these types of expenditures. Identify the common types of these expenditures and the restrictions placed on these expenditures, including, how do the rules for international travel differ from domestic travel?

Answer 1

• Business owners often make expenditures that are motivated by both business and personal concerns that are closely monitored and restricted by the IRS, includes: meals and entertainment, travel, transportation, and property use (for these expenses TP must maintain specific, written, contemporaneous records).
• Domestic primary business travel - Transportation costs are fully deductible but other related travel expenses are limited to those incurred during the business portion of the trip.
• Domestic primary personal travel - TP will not deduct any transportation costs related to the travel (can deduct transportation during the trip for business) but may deduct other expenses incurred during the business portion of the trip.
• Abroad primarily personal travel - Only expenses directly linked with business activities are deductible and TP cannot deduct days spend traveling (the same as domestic travel).
• Abroad primarily business travel - A portion of the round-trip transportation costs is deductible (business days/total trip) and days spend traveling to the site are considered business days for this, other expenses have the same rules as domestic travel.