How to Turn Your Vacation into a Tax Write-off

Authors Note: This has been updated on Nov 10, 2021 with new information, links, and resources. 

Wait a minute, you say — the IRS frowns on claiming vacation costs as business deductions. But you can sneak some playtime into a work trip, and keep it all perfectly legit. 

Obviously, we’re not talking about exploiting the U.S. tax code. But we are saying that as a hard-working business owner, it’s a good thing to carve out some time for meaningful rest and relaxation. In fact, we can almost guarantee that your business will be all the better for it.

Since your travel expenses are already largely (if not entirely) covered as a business expense, it makes sense to use the opportunity to sightsee, take in a local attraction, or simply give yourself some time to unwind and decompress. And since you’re doing so as part of a larger business expense, you can accomplish these goals without spending an arm and a leg.

Accomplishing this, however, means that your business trip must comply with the ordinary requirements of a business trip. The IRS requires that your expenses are necessary for the operation of your business. In other words, the primary purpose of your trip must be for business purposes. 

On the one hand, this means that you can’t simply write off your next beach vacation. But it does mean that as long as your trip is primarily for business purposes, you may be able to deduct many of the expenses when you file your income taxes. 

Here’s how to follow the rules while saving a bundle on your tax return.

What’s Considered a Business Trip

These are the criteria you must meet to satisfy the IRS’s definition and qualify for deductions.

  • The primary purpose of the trip must be business. You must spend the majority of your days away in work-related activities, such as meeting with customers. The days you spend traveling to and from the destination count as business days, so meeting this requirement is easier than it seems.For example, you could fly to Honolulu on Monday, attend a conference Tuesday through Thursday, hit the beach on Friday and Saturday, and fly home Sunday. That would be considered 5 workdays and 2 vacation days.
  • The trip must be planned in advance. Write out a detailed itinerary and what you’ll be doing each day. Get it time-stamped well in advance of your departure; for example, you could email it to a colleague.
  • The trip must be somewhere other than your “tax home.” In other words, you must leave the location where your business is based for longer than a normal workday.
  • The trip must be for “ordinary and necessary” activities. For example, it may be necessary to rent a car during your stay, but it’s not necessary to rent a luxury class one. There’s a lot of room for interpretation here, but it’s better not to try and push it, especially since the IRS penalties can be substantial.

Different Rules for International Trips

Traveling outside the USA offers even more opportunities for vacation deductions. Not only that, but traveling abroad gives you a greater opportunity to broaden your cultural horizons. Who knows, you might even discover that your next sight-seeing adventure gives you a breakthrough idea for your business.

As before, your business trip needs to be made primarily for business purposes. This may limit you in terms of destination, but it also might give you a chance to see a part of the world you might not see otherwise. The rules for these types of deductions are also a bit less stringent than the regulations for other trips.

International trips must meet the following criteria:

  • You only need to spend 25% of your days doing business.
  • If you spend less than 25% of your time working, you can still take deductions, but only as a percentage of the total cost. For example, if you spend 1 day out of a 5-day trip to Italy on business, that’s 20% of your time away and you can deduct 20% of your airfare.

What You Can Deduct

These are the expenses you can write off when you’ve met the criteria for a business trip. Keep in mind that some of these expenses can be written off in their entirety, while others can only be written off partially.

In all cases, it’s best to save receipts and records. Not only will this shield you in the event of an audit, but it can make it easier for you to keep track of your expenses when filing your income taxes. If you can book your lodging and transportation online, you’ll already have written documentation of some of these expenses, and restaurant receipts can easily account for the rest.

You’ll want to account for the following expenses when on a trip:

  • Travel: 100% of air, train, bus, or other transportation fares as well as rental cars.
  • Lodging: 100% of the days you spend working. If you work your itinerary right, you may also be able to write off the vacation days, by sandwiching the vacation days in between workdays. For example, you might fly to Orlando on Thursday, have a workday on Friday, see Disney World on Saturday and Sunday, have another workday on Monday, and fly home on Tuesday. Since it wouldn’t be cost-effective to fly back and forth for each workday, the weekend you stay over would be considered workdays.
  • Food and entertainment: 50% of all meals and entertainment that specifically facilitate business, or that are incurred while traveling to and from your destination. Keep receipts and good records in case the IRS asks.

When Family or Friends Come Along

You can’t directly deduct any of their expenses. However, in many cases, they can ride on your coattails for less than full cost. 

For many entrepreneurs, traveling with family or friends simply makes sense. After all, if you could use some leisure time away, chances are your spouse is in the same boat. Tying this away time to your business trip can help the whole family save money, and if you have kids, this can be a great way to expose them to a new destination or a new cultural experience.

But before you book that trip to Walt Disney World, there’s a few things you need to understand when it comes to friends and family joining you.

The following rules apply to deductions when traveling with guests:

  • Car Rental: As long as it’s the same “ordinary and necessary” car you would have rented if you were alone, nothing says there can’t be other people in the car.
  • Lodging: You can deduct the portion of hotel costs that you would have paid for a single room. For example, if you would have spent on a $100 single room when traveling alone but you’re in a $150 double with your significant other, you can still write off $100.

When Your Trip Doesn’t Quite Qualify as Business

You may be spending the majority of your days on vacation, and just happen to meet with a client while you’re there. Or maybe you didn’t get the necessary documentation to support your claim that it was a business trip.

You can still write off 50% of meals and entertainment you spent for business purposes. 

However, you can’t deduct any travel or lodging costs. Granted, this still may mean that the trip as a whole is more affordable since you’ll be deducting some of the expenses, but that doesn’t mean you’ll get the full benefit of a longer stay. 

If that’s a dealbreaker, get creative! Find ways to extend your stay for legitimate business purposes and take advantage of the full benefits we’ve described above. 

Check with other business contacts and get their input; they may be able to help you network in the area you’re staying and steer you in the right direction in ways that help your business as well as your vacation. 

Need more help with deducting your vacation expenses? Our online bookkeeping and accounting team is here to answer any questions you have, and file your tax return correctly so that you get every write-off you’re entitled to. All work and no play makes you a dull business owner. So go ahead and take some time for R & R. You deserve it!

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