Are you longing to spend some time on a sun-soaked beach, but can’t afford the expense? If done properly, the IRS allows business owners to write off some aspects of their vacation expenses, even if the trip isn’t used solely for business purposes. Here are the IRS rules that allow you to combine business and pleasure and reduce next year’s tax burden.
Schedule Business Appointments Before You Leave
To quality for the deductions, you must have at least one business-related appointment set up before you leave. It’s not possible to deduct any expenses if you leave with the idea that once you arrive, you will meet contacts and conduct business on the fly. The IRS expects you to establish a “prior set business purpose,” and keep a copy of your correspondence and books showing the scheduled appointments.
Use the Trip Primarily for Business Purposes
As long as your trip is primarily used for business purposes, and you are traveling away from your place of business for longer than an ordinary day’s work, you can deduct 100 percent of your transportation costs, such as airfare or mileage. On days considered business days, you will also be able to deduct lodging, taxis, car rentals, and 50 percent of your food costs. You can also deduct laundry, dry cleaning, personal grooming, and other “ordinary and reasonable” business expenses necessary for the trip. If you make a layover in another city for personal reasons, you cannot deduct those related travel expenses. The IRS doesn’t require that you keep receipts for expenses less than $75, but you do need to keep a log of the time and date of the expenses. You can do this with help from apps like Expensify or Concur Mobile.
Schedule Business Related Activity Wisely
If you schedule your time right, you will be able to squeeze in some personal vacation time, and only have to pay for lodging, meals, and other personal expenses on days that don’t qualify as business days. The IRS allows you to count travel days as business days, along with any weekends or holidays that are sandwiched in between business appointments. So if you plan to leave on a Thursday, and have a business appointment on Friday, and then another one on Monday, you will have accumulated five business days, and can write off all expenses for them. If you want to stay longer and use the time as personal vacation days, your transportation costs would still be 100 percent deductible, and you would only be out of pocket for any expenses unrelated to business during the extended-stay period.
You Can’t Deduct Your Family’s Expenses
You will only be allowed to deduct the expenses you would typically incur on such a solo business trip, and not those of your family. For instance, if you travel by air, only your ticket will be paid for, but if you drive, the entire expense of it would be deductible because you would have incurred the same expenses on your own. Likewise, only 50 percent of your food costs are deductible, along with your portion of the lodging. That means if you typically rent a single hotel room, but need a double and another room for the kids, you can only deduct the cost of a single room.
Travel Outside the United States
The above rules only apply for travel within the United States. If you plan to travel to another country, the IRS has stricter standards when allowing for deductions. For the complete set of rules about deductions for overseas travel, see IRS publication 463.
By following the IRS rules and scheduling your trip and business activities properly, you will be able to combine business and pleasure, and have the added benefit of deducting many of your vacation expenses.