As the New Year approaches, so too does tax season, and as the travel industry prepares for an influx of new travel destinations and tour offerings, agency owners and travel professionals should also keep an eye on their financial records.
To help advisors and agency owners better manage their businesses and prepare for the upcoming tax season, Angie Rice, co-owner of Boutique Travel Advisors, and Jennifer Hand, owner of Jennifer Hand Travel Pro, have shared some of their insights through their experience both as CPAs and travel advisors.
To that end, here are some useful tips to help balance your books, protect your private information, and generally manage your business before tax season arrives.
1. Know what and when to expense.
For travel advisors and agency owners, knowing what to expense is important. From fam trips researching new destination offerings, to furniture and equipment for your small business, deducting business expenses is key to managing your affairs while still staying profitable. But knowing what and how much to expense is essential to keeping the IRS off your back.
As far as deductions go, the most important thing to know is that whether or not you choose to deduct something is largely up to you, but it’s up to the IRS to determine if those deductions are valid. If you get caught mismanaging your funds, you could be under scrutiny for years, so it makes sense to get some good advice and be reasonable with your deductions. If you go overboard and get audited even one time, it’s not going to be worth it.
You really have to think about every deduction as having to directly benefit your business, and you have to always be able to justify your expenses, and how they help run your business.
For example, when Angie Rice goes on fam trips or checks out bookable destinations for her clients, she makes sure to make the most of it. “I’m taking notes, I’m following up with clients, I’m posting on social media, and typically, my trips result in three to four bookings within a three- to six-month period after my travel. So I can clearly justify, if I ever need to, to the IRS, that my travel had an impact on my income, and therefore was a justifiable expense.
“It’s no different than a retailer going on a trip to New York to look at the latest fashions. When travel advisors are going to new markets to really see what would appeal to their clients,” said Rice, “by all means, that’s a business expense.”
2. Home-based advisors can deduct home-office expenses.
Home-based advisors have the option to deduct reasonable expenses for their home office.
“A lot of your home expenses can be deducted in some form or another,” said Hand. “However, there are implications for when you sell your house, if certain deductions were used. Again, just be reasonable and save whatever you’re going to need to justify it.”
You can write off a portion of your office space that’s used for your business. Additionally, if you furnish the office in your home, that would also be a depreciable asset that can lower your taxes.
Knowing where to get good information, including the IRS website, is an important step for a successful tax season. Photo: Shutterstock.com.
3. Don’t be too aggressive with your deductions.
“One of the biggest mistakes I see advisors making is they’re overly aggressive with their deductions and not keeping good records,” said Hand.
Advisors should be careful when they decide to write off things like vehicles. You should take the precautious route of writing off your mileage, so if you’re [going] to and from the airport, etc., the IRS has a standard rate they apply per mile. This might be a better approach to adopt because it’s hard to justify that a car is being solely used by a travel advisor for business purposes.
“And the biggest mistake I see is people intermingling funds between cash and credit card. It is always best to keep all your business transactions flowing on business,” said Hand. “It’s just easier and makes things look more professional.”
4. Know where to go for reliable tax information.
“The IRS has a great website. I’ve found it to be very user-friendly for consumers, including travel advisors,” said Rice. “And often associations like ASTA do a wonderful job of providing information for travel agents that are business owners, and they sometimes cover tax topics as well.”
Advisors should also check their local networks. Ask people who own small businesses, whom they use for their business taxes. If you find a small business owner, or especially a travel agency owner, find out who gives them tax advice and who does their taxes. You can pay for a one-time consultation, and just have someone go over your financial records, and talk you through how best to handle your taxes.
5. Protect your personal and business data.
When it comes to protecting your business data and client information, one can never be too careful. Whether you have clients send you their documents through paper or email, don’t ever transmit vital client information in an insecure, non-PCI compliant way.
“You want to make sure that you keep that information secure,” said Rice. “Make sure that, when you’re web hosting to the extent that clients are providing information, you want to make sure that you’re working with a host for your website that keeps that data secure.
“A lot of travel agents take down credit card information and then destroy the information after they’ve made the booking.” They don’t save the client’s credit card info, they just reobtain it from returning clients when they’re ready to book.
To the extent that you have more of a paper-based business, a lot of those agents choose to take their information and shred it so that they don’t have a copy between booking clients. It might be slightly less convenient to have clients resubmit their documents before every booking, but these methods help protect their private information, and make your business more secure.
A good CRM is also a great long-term investment for advisors concerned about cyber security.
Advisors need to know what to look for in a CPA. Photo: Shutterstock.com.
6. Know what to look for in a CPA.
It doesn’t matter how much you think you know, or what kind of software you have, it really does pay to use a good accountant. But make sure the tax professional you use is well-versed in the workings of your particular business.
“You don’t have to use an expensive accountant, but you really do want someone who is savvy in your business structure, and the type of business you have, and the type of expenses you have,” said Hand. “Even though I hold a CPA license, I knew that business taxes weren’t my forte. I’ve gotten some really good advice that saved me a lot of money over time by using a tax professional.”
Tax professionals have different niches, so finding a tax accountant, or preferably a CPA that has experience working with other travel advisors, or in industries that run and are similar to travel agencies, will be instrumental in pairing advisors with the right tax professional. Make sure you explore all of the factors of your business to find the best tax professional to meet your needs.
“In this day and age, it’s really easy to connect with local travel professionals and small business owners in your area to ask for a referral,” said Hand. “The best CPAs are always found through word-of-mouth, through referrals. But local bankers and small business accountants are resources that can also help.”
7. Budgeting is key.
The best way to plan for taxes is to plan for all of your expenses, according to Hand. “Budgeting is something that most travel professionals don’t really pay attention to. We’re worried about finding clients, about learning products, and getting bookings and collecting final payments, but you should be operating from a budget.”
Advisors should be paying attention to how much money is coming in and going out. “It’s easy to get caught up and totally lose track of how much money you brought in for the year. Then you get to the end of the year, and you either owe a lot of taxes or you really haven’t been profitable.”
Budgeting is key, and doing financial statements or closing your books formally once a month is ideal, once a quarter is minimum. That will really help keep you on track, keep a closer eye on your business, and give you an idea of how much you’re going to owe in taxes.
Understanding the tax implications of using ICs is vital. Photo: Shutterstock.com.
8. Understand the difference between ICs and employees.
“I think as it relates to travel advisors, we’re hearing a lot about the IC [independent contractor] model, particularly in California and now on the East Coast,” said Rice. “When looking at Independent contractors versus employees, I think it’s important if you have independent contractors that you really understand the rules, the laws, and the tax consequences that are involved.
“If you’re looking to work with independent contractors over employees, you’re going to want to work with a tax accountant that can help you.” It’s essential that agency owners understand how these different factors will ultimately affect their businesses.
9. Don’t get mislabeled by the IRS.
Be careful how you treat your business. There is a difference to the IRS between hobbyists and businesses. “You can’t treat your travel agency like a shelter to put a quarter of your cable and internet and water and mortgage,” said Hand. “I mean, you can try it, but whether it sticks or not is up to the IRS.”
While this advice isn’t relevant to all, or even most travel professionals, it’s something everyone should keep in mind in order to avoid being mislabeled or called out by the IRS.
“Don’t be posting on social media that this is a part-time gig,” said Hand. “The IRS is not going to let you treat your agency like a full-time business out of your home with all those deductions if you’re only working an afternoon a week, or a few times a month.”
10. Keep track of your receipts and financial records.
This should go without saying, but advisors really need to keep their financial records as complete as possible.
“Oftentimes, you’re traveling to meet clients, meeting over coffee or lunch. These can result in a sizeable number of incidental costs,” said Rice. “These expenses, meals and entertainment, can be justified as a business expense.” But without a well-maintained record of the expenses, it may end up costing you even more out-of-pocket in the future.
The IRS doesn’t necessarily need all of your receipts. Often your bank statements can show your expenses and how they relate to your travel business. But you really do need to keep records as complete as you possibly can.
“I always keep my receipts. I write who I had lunch with, I write the date, and whether it’s a client or a supplier. And at the end of the month, I update all my accounting records, so that by the end of the year, I’m up to date.”
*A special thanks to Angie Rice of Boutique Travel Advisors, and Jennifer Hand of Jennifer Hand Travel Pro for contributing their time and insights to this article.