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Can You Deduct First-Class Tickets?

Bojan Radulovic
Author: ,
Posted: 12/12/2019
american airlines aircraft parked at an airport

If you have been operating a business for a while, you probably had a chance to deal with some complex transactions and tax-related issues, amongst all else. After all, the self-employment tax alone is easily one of the most challenging aspects of navigating a lucrative sole-proprietor venture. For those who are just starting, however, figuring out the ins and outs of accounting is going to be one of the most demanding parts of breaking through the barriers to entry. Enter first-class tickets.

Regardless of the level of experience, there are certain inquiries that practically all businessmen and women may need help with. Deciding whether you can take some unique deductions is easily the most common examples of this. One such question, for instance, is whether you can deduct first-class tickets and other air-travel-related expenses. So, what are the rules that the government implements when it comes to such, albeit unorthodox, expenditures come to mind?

The Principle of “Reasonable”

One of the most important concepts that the Internal Revenue Service, or the IRS, relies on is the so-called principle of “reasonableness.” When you are deciding what is an allowable business deduction, the IRS will require that any reported expenses be used within an appropriate course of business. For instance, if you have a company that operates in the sphere of automobile delivery, taking a tax-related deduction for gas or car maintenance costs would be normal and expected.

If you attempt to deduct interest charged on a home loan, on the other hand, you are bound to run into some issues. This is because that particular expense has nothing to do with the income-generating activity, and it is not reasonable for the industry. Thus, to deduct first-class plane tickets, you will need to ensure that air travel is something that is within the natural scope of your company’s focus.

view from the first-class seat

First-Class Tickets as a Business Expense

Presently, there are very little to no limits on business expenses, especially for those who are operating at a profit and do not need to worry about any losses. In translation, you can take out nearly all expenses that were a byproduct of running your operation. While the recent tax law did make some notable changes to these provisions, the underlying concepts remain the same. Thus, as with everything else, there are a plethora of occasions where first-class plane tickets are an acceptable deduction. Nonetheless, if you cannot prove that the trip to which the ticket pertains was taken for business reasons, you should not deduct the price of the flight.

How to Approach Air Travel

The first thing that you must do is analyze different tickets to verify that the first-class option is the most fitting one. If it is not mandatory and you could just as easily reach your destination via an economy seat, which is incomparably cheaper, there is no need to go with first class. While an audit is unlikely, you should understand that overpaying for the method of transportation could lead to an injury from the IRS. If you have concluded that you cannot find any other option, however, you should book the first-class flight immediately and avoid any future price increases. In reality, these are some basic money-saving steps that you should be doing to help your business anyway.

First-Class Tickets Documentation Matters

For small business owners, keeping track of all expenditures is one of the most important daily tasks. This means that you must save every receipt and confirmation that shows where your money went. So, once the tax season comes around, you should have enough data to showcase exactly how your costs break down, thus, successfully reducing your effective tax rate by minimizing the taxable income. To avoid computational errors or any faux pas, think about using software such as QuickBooks or even Microsoft Excel. While they might be relatively difficult to maneuver at first, these tools will reduce the likelihood of you failing an audit.

small business owner tracking expenses

Preparing for a Potential Audit

Once you take multiple first plane ticket expenses, you will probably notice a hefty drop in your income. That is, of course, unless your company is making millions of dollars in monthly revenue. For instance, when an entity that is bringing in $100 million deducting first-class tickets worth $100,000 during the year is unlikely to set off any alarms. If your business only makes $150,000 and you spent $10,000 on air travel, on the other hand, the IRS will momentarily flag your activity for further analysis.

The reason why is that you are sending off red alerts that point toward things like tax evasion and expense overstatement. As said, though, as long as you have valid evidence that justifies these spendings, it does not matter how high they are. Still, you should consider finding a professional who can help you do some tax planning that leads to a lower risk of an audit. Additionally, always think about first-class plane tickets as a temporary pleasure that requires an abundance of preparation, and spend an appropriate amount of time considering the tax-related consequences. So, click on the following link to get a free consultation or get pricing on our virtual tax prep services.

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