Travel Expenses: Financial Planner Visits And Tax Implications

If you're wondering whether you can expense travel to your financial planner, the answer is yes – but with some caveats. The Internal Revenue Service (IRS) allows individuals to deduct certain travel expenses incurred while seeking investment advice. This includes transportation and lodging costs such as airline tickets, taxi fares, hotel stays, and even a portion of meals. However, it's important to note that these deductions are only applicable if your financial planner is located in a different city and the primary purpose of your trip is to receive investment advice. Additionally, the IRS has limitations on deductions, such as the 2 percent rule, where miscellaneous expenses, including investment advisory fees, can only be deducted if they exceed 2% of your adjusted gross income. Proper record-keeping and receipts are crucial to substantiate your claims.

Travel expenses for investment advice may be tax-deductible

When it comes to what you can deduct, there are several items that are typically allowed. These include transportation costs such as airfare, train or bus tickets, car mileage, taxi fares, and other local transportation expenses. Lodging expenses such as hotel stays are also deductible, as well as meals and laundry expenses during your trip. Keep in mind that meals are typically subject to a 50% deduction limit. Other deductible expenses may include parking fees, tolls, business calls, and tips related to these expenses.

It is important to maintain good records of your travel expenses and keep receipts. The IRS has specific rules and limitations on deducting travel expenses, so be sure to review their guidelines or consult a tax professional for more detailed information. Additionally, the rules for deducting travel expenses may vary depending on your country or region, so make sure to refer to the appropriate tax authority for your location.

Lastly, it's worth noting that there are certain conditions under which travel expenses may not be deductible. For example, if you have a regular place of business and are temporarily working away from your main location for a year or less, all your "away from home" expenses are typically deductible. However, if you expect to work at that temporary location for more than a year, your travel expenses may become non-deductible.

Research prices in advance to avoid a blown budget

When it comes to financial planning, it's important to be prepared and know what to expect in terms of pricing. Here are some tips to help you research prices in advance and avoid blowing your budget:

• Understand the cost structure of financial advisors: Financial advisors typically charge based on the amount of money they manage for you, known as Assets Under Management (AUM). This fee can range from 0.25% to 1% per year. Some advisors may also charge a flat hourly or annual fee, which can vary from $200 to $400 per hour or $2,000 to $7,500 annually. Others may offer a one-time financial plan for around $1,000 to $3,000. It's important to understand the different cost structures to find one that suits your needs and budget.
• Compare different types of financial advisors: There are three main types of financial advisors: robo-advisors, online financial planning services, and traditional human financial advisors. Robo-advisors are typically the most cost-effective option, charging an AUM fee of 0.25% to 0.50%. Online financial planning services usually charge an AUM fee of 0.30% to 0.89% or a flat annual fee starting at $2,000. Traditional human financial advisors often use a combination of fee structures, including AUM fees, retainers, hourly rates, and one-time financial plans.
• Research specific financial advisors: Before committing to a financial advisor, be sure to research their pricing structure and any additional costs. Websites like letsmakeaplan.org, plannersearch.org, and napfa.org/find-an-adviser can help you find certified financial planners and compare their pricing. It's also a good idea to ask for a list of fees and services provided to make an informed decision.
• Consider your needs and budget: Different types of financial advisors cater to varying levels of service and expertise. If you only need help with a specific issue or a one-time review of your financial plan, an hourly or one-time financial plan option might be more cost-effective. On the other hand, if you require ongoing investment management and comprehensive financial planning, a traditional human financial advisor or online financial planning service might be a better fit, despite their higher fees.
• Be mindful of hidden costs: When researching prices, pay attention to potential hidden costs or additional expenses. For example, some financial advisors may charge for financial planning and investment management separately, while others may have account minimums or require additional fees for certain services. Understanding the full scope of fees will help you stay within your budget.

By researching prices in advance, comparing different options, and considering your specific needs and budget, you can make an informed decision and avoid blowing your budget when seeking financial planning advice.

Use a travel credit card to earn rewards

Using a travel credit card is a great way to earn rewards and save money on travel expenses. There are many types of travel cards, and they often come with sign-up bonuses and robust rewards programs.

The best travel credit card for you has as much to do with you as with the card. How often you travel, how much flexibility you want, and how much you value airline or hotel perks are all things to take into account when deciding on a travel card.

• Sign-up bonus: Choosing a card with a healthy sign-up bonus will help jump-start the possibility of unlocking elite status across different areas, including airline and hotel loyalty programs.
• Annual fee: Premium travel credit cards typically feature higher annual fees. Double-check that the card you choose suits your spending habits and travel needs before applying.
• Bonus categories: Check which bonus categories a card offers to ensure that they align with your spending, whether it's at restaurants, grocery stores, or on streaming subscriptions.

There are two main types of travel credit cards: co-branded cards and general travel cards.

Co-branded cards carry the name of an airline or hotel group, such as the United Explorer Card or the Marriott Bonvoy Boundless Credit Card. The rewards you earn are redeemable only with that particular brand, which can limit your flexibility. For example, if your credit card's co-branded airline partner doesn't have any award seats available on the flight you want on the day you want, you're out of luck. On the other hand, co-branded cards commonly offer airline- or hotel-specific perks that general travel cards can't match.

General travel cards aren't tied to a specific airline or hotel, so they offer much greater flexibility. Well-known general travel cards include the Capital One Venture Rewards Credit Card and the Chase Sapphire Preferred Card. Rewards on general travel cards come as points (sometimes called "miles" but they're really points) that you can redeem for any travel expense. You're not locked into using a single airline or hotel, but you also won't enjoy the perks of a co-branded card.

When choosing a travel credit card, it's important to consider your spending habits and travel preferences. If you prefer to use one airline or hotel chain, an airline- or hotel-branded card might be the best option. If you value flexibility, a general travel card with a wide range of redemption options might be a better choice. Additionally, consider the annual fee, sign-up bonus, foreign transaction fees, and rewards program when making your decision.

Book hotels and stick to a preferred airline to maximise rewards

When it comes to maximising rewards, booking hotels and sticking to a preferred airline can be a smart strategy. Here are some insights to consider:

Booking Hotels

Booking hotels with points can be a great way to save money on travel, especially since lodging is often the biggest travel expense. According to the US Bureau of Labor Statistics, Americans spent almost double on out-of-town lodging compared to airline fares. By using points for hotel stays, you can significantly reduce this expense. Additionally, hotels often offer more freebies than airlines, such as complimentary breakfast or shuttle services, which can further reduce your overall travel costs.

Some hotel loyalty programs, like Hilton Honors and World of Hyatt, waive resort fees when you book with points. Marriott Bonvoy offers a fifth night free when you pay for the first four nights with points. Certain travel credit cards also provide benefits like a fourth night free on award stays. These perks can enhance the value of your points and make hotel redemptions a more attractive option.

Sticking to a Preferred Airline

While booking directly with airlines is typically the best way to secure the lowest fares, it's important to consider the benefits of sticking to a preferred airline. Joining an airline's loyalty program can earn you miles or points that can be redeemed for future travel. If you frequently fly with the same carrier, you can accumulate miles faster and unlock elite status benefits, such as priority boarding, seat upgrades, or lounge access.

Additionally, consider using co-branded credit cards associated with your preferred airline. These cards often provide benefits like bonus miles on purchases, free checked bags, or discounts on in-flight purchases. By combining your loyalty program membership with a co-branded credit card, you can maximise the rewards and benefits offered by your preferred airline.

Combining Strategies

To maximise rewards, you can combine hotel and airline strategies. Look for opportunities to transfer points or miles between hotel and airline loyalty programs. Some credit card issuers, like Chase, American Express, and Citibank, allow you to transfer points to multiple partner programs. This flexibility gives you more options for redeeming rewards and protects you from individual program devaluations.

By booking hotels and sticking to a preferred airline, you can take advantage of loyalty programs, earn rewards, and access exclusive benefits. Remember to compare different programs and cards to find the combination that best aligns with your travel goals and preferences.

Use a sinking fund to avoid dipping into emergency funds

In general, travel expenses for seeking investment advice are tax-deductible. This includes travel to see a financial planner in a different city. Deductible costs include standard transportation and lodging expenses, such as airline tickets, taxi fares, hotel bills, and meals. However, it is important to note that travel for purely personal reasons, such as a family vacation, is not deductible, even if you meet with your financial planner during the trip.

Now, let's discuss how a sinking fund can help you avoid dipping into your emergency funds:

A sinking fund is a strategic way to save money by setting aside a specific amount each month for a particular purpose. It is different from both a savings account and an emergency fund. While a savings account is where you keep your money, a sinking fund is a plan for how you save it. A sinking fund is also distinct from an emergency fund, which is intended for unexpected expenses. In contrast, a sinking fund is for planned expenses that you know are coming up and can prepare for in advance.

• Avoid debt and interest charges: By saving up for large expenses over time, you can avoid putting them on a credit card or payment plan, which can lead to debt and expensive finance charges.
• Protect your emergency fund: Without a sinking fund, you might be tempted to dip into your emergency fund for non-urgent expenses like vacations or gifts. But doing so can leave you vulnerable when a true emergency arises.
• Stick to your budget: Sinking funds help you plan for all types of expenses, expected and unexpected, so you're less likely to overspend and break your budget.
• Stay organized and reduce financial stress: Knowing how much you're spending and what you're spending it on is crucial for effective money management. Planning for expenses in advance and knowing their costs can help you stay organized and lower financial stress.
• Decide on your savings goal: Determine what you're saving for and how much it will cost. This could be a vacation, a wedding, a down payment on a house, or any other financial goal.
• Set a deadline: Knowing your deadline will help you calculate how much you need to save each month to reach your goal.
• Choose an account: Select a high-yield savings account with no fees or minimums to maximize the return on your savings.
• Work it into your budget: Ensure your budget allows for contributions to your sinking fund. You may need to adjust your budget or allocate existing savings towards this fund.
• Automate your contributions: Consider setting up automatic monthly transfers from your checking account to your sinking fund to stay on track without having to remember to transfer funds manually.

Remember, while you can have multiple sinking funds, don't spread yourself too thin. Focus on a few savings goals at a time to ensure you're making progress.

Frequently asked questions