You've probably heard that the IRS really doesn't like it when you try to claim personal expenses as business expenses, but that doesn't mean you can't mix a vacation with a business trip. Maybe you need to see a client near a place you've always wanted to go or you have a couple of clients who are near your planned vacation. With careful planning, you can still legally deduct all of your business expenses and maybe even cover some of your vacation costs.
Travel expenses will depend on the primary purpose of your trip. If the main reason for the trip is business, you can deduct your full travel expenses. If the main reason for the trip is personal, you can deduct a prorated portion of your expenses.
The deciding factor is usually the number of days you spent on business out of the total trip. More than half the time, including travel time, makes the primary purpose business.
Travel expenses in this context would include airfare, a train ticket, or your standard mileage-rate if you drive. Let's say you bought a $700 plane ticket for a 7-day business trip. If you spend 4 days on business, the primary purpose is business, and you can deduct $700. If you spend 3 days on business, the primary purpose is personal, so you get the $300 prorated deduction.
For local transportation, like rental cars and taxis, you need to figure out what expenses were actually for business purposes. If you use a rental car for the entire time and don't have separate charges for business days and personal days, deduct the daily cost for the days you did business.
If you rent a hotel or condo, you'd usually deduct the nightly cost for the days that you did business. Note that if you save money or don't spend extra money when you extend your stay, such as when there is a minimum stay length requirement, you may be able to deduct the entire cost with proper documentation.
There are two types of meal deductions. One is for your meals while traveling, and the other is for meals for you and your clients while discussing business.
Like other expenses, you can claim your own meals during travel provided that you're doing business on those days. You can't deduct your meals on your vacation days.
Save receipts and track your total expenses, but remember when you do your taxes you only get to deduct 50% of your meal costs.
You can't deduct any extra expenses when you bring your family. Some corporations might allow or pay for spousal travel, but the IRS doesn't allow small businesses to deduct these expenses.
If you're driving and your family fits in your car, you still get your full mileage deduction. If you're flying, only your plane ticket is deductible.
The same thing goes for hotel stays. If you don't buy a bigger or extra room, you can deduct the full cost. Any upgrades or extra rooms for family members aren't deductible.
International travel is a good news, bad news situation. The good news is that only 25% of your trip needs to be for business purposes rather than 50%. That's because international travel is expensive and often forces you to stay for a few extra days to time your flights properly.
The bad news is that the IRS is much more skeptical of international travel. That's because few businesses truly have a need to travel abroad but many business owners are looking for ways to have a cheap international vacation.
What Makes a Trip Business?
To claim a trip as business, it should have an ordinary and necessary business purpose. This might include in-person client meetings or attending a conference. If you're just bringing a laptop to do work you could do at home, that's not a business trip.
To avoid losing an audit, make sure you document everything.
- Why were you going?
- Who did you meet with?
- How did you gain new business or maintain existing business?
- Why did you need to travel to that location?
This is a very heavily audited area, so keep it legitimate. If you're truly mixing business with pleasure, you should be OK. If you feel like you're winning on a technicality or taking advantage of a loophole, the IRS has probably already fined hundreds of people for the same thing. If you have any doubts, talk to your accountant ahead of time about how to properly have a hybrid business trip and vacation or about what deductions you can properly take for a past trip.
The information provided in the Taxfyle Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.