In the first part of this series, I looked at the criteria the IRS uses to determine whether your MLM tax deductions are legitimate based on your “intent to produce a profit.” In this second article, I delve into a specific category of tax deductions: business travel expenses.
The Major IRS Rule About Business Travel Expenses
There’s one major qualification when it comes to figuring out whether your travel expenses are tax-deductible for your MLM business. Here is the rule:
If your business “requires you to sleep or rest away from your principle place of business,” then you may legally deduct your travel and related expenses.
So what does this mean? Since you probably run your MLM business from your home office, the tax code allows you to deduct travel expenses for any trip that takes you away from home. That’s simple enough. These travel expenses can include transportation costs (airline tickets, train tickets, or car rentals) plus related expenses like lodging, meals, and tips.
Three Additional IRS Rules About Business Travel Expenses
As always, the IRS can’t keep their rules simple. In addition to the major rule above, there are three other rules about business travel that you must follow. Your trip must:
1. be usual and customary for your type of business
2. have the purpose of gaining a direct business benefit
3. assist you in and be appropriate for developing and maintaining your business
In the MLM industry, examples of trips that would qualify according to these three rules include trips for trade shows, corporate trainings, prospecting meetings, and trainings you give.
Business Travel Expense Myth-Buster
One more note before you dash off on your next business trip. MLMers are often tempted to justify any and all trips as “business trips” by saying that all people are prospects, thus all trips are business trips. The IRS isn’t going to be happy with you if you follow this rule. To stay on the IRS’s good side, be sure that you can prove that a trip qualifies according to the three rules above. The documentation can be as simple as emails between yourself and prospects who live in the city to which you are traveling, as well as documentation that you actually met with those prospects (such as meal receipts). This proves that you are taking the trip to “gain a direct business benefit.”
The IRS has additional rules about mixing personal and business travel, as well as specific rules for documenting your business travel expenses, but this article should act as a good guide to get you started.
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