If you intend to take some time off this summer, how you arrange your vacation can save you serious tax dollars. You can combine business with pleasure and write off a good deal of the cost of your trip. Here’s what you need to know to avoid problems with the IRS.
Make business the primary purpose of the trip
If you’re traveling within the United States, and the main reason you’re going on the trip is for business, then the cost of getting to and from your destination(s) is deductible as a business expense. There is great flexibility in arranging your time away without missing the tax deduction, and you’ll be able to get in some R&R as long as you schedule wisely.
For example, your business is located in Seattle, Washington, and you have to see suppliers in Orlando, Florida. You schedule meetings there on Monday through Thursday. Nothing prevents you from visiting Disneyworld, Universal Studios, or other theme parks in the area over a long weekend. The cost of airfare to and from Orlando is fully tax deductible. The cost of hotel stay for the days on business is also tax deductible, as well as 50 percent of your meals on those days.
If the primary reason for the trip is a vacation, then travel costs aren’t a business expense. However, if you do see a customer or client while on vacation and take that person to dinner, the cost of this meal can be a deductible business expense.
Note: Different tax rules apply to deducting the cost of foreign travel as a business expense when personal time off is involved.
Taking a companion
In general, you can’t deduct the travel costs of a spouse or other companion on a business trip. As a practical matter, however, it may not cost you extra to have company.
- Consider using frequent flyer miles for a companion
- Drive to the destination; there’s no extra charge for a passenger in your car. Driving your personal vehicle on business this summer can be clocked at 55.5¢ per mile
There usually is no additional charge in a hotel or motel for a second person in the room.
Brush up on business skills
If your summertime is your slow time, it may be an ideal time to take required continuing education courses or other business-related classes. Travel for education purposes is a business expense—the cost of the education and the trip can be deductible.
The deduction is not barred simply because the courses are held in a resort area. Even though you take the courses by day and party by night, all of the travel and accommodation costs are deductible.
Create a paper trail
Travel, with or without an element of personal recreation, requires special recordkeeping. Failure to adhere to the strict (and somewhat burdensome) rules can cause you to lose an otherwise legitimate write-off. The requirements for travel include notations in a diary, expense account form, or other record, of the following information.
- The cost of each business expense (e.g., travel, lodging, meals). Incidental expenses may be totaled in any reasonable category (e.g., tips, taxis, laundry)
- Dates of the trip
- Destination (area of travel)
- Purpose of the travel and the benefit gained or expected to be gained
More details about business travel can be found in IRS Publication 463, Travel, Entertainment, Gifts, and Car Expenses. Enjoy your time away!