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. 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.
1. 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.
1. 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.
2. The trip must be somewhere other than your “tax home.” In other words, you must leave the location where your business is based on longer than a normal workday.
3. 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.
1. You only need to spend 25% of your days doing business.
2. 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.
1. Travel: 100% of air, train, bus, or other transportation fares as well as rental cars.
2. 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.
1. 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.
1. 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.
2. 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.
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!