With proper planning, you can mix personal pleasure with your business travel and generate legitimate business travel expenses. There is a lot of misinformation and confusion on the rules. Our goal is to simplify the complex IRS rules and make this article a good point of reference when planning future business and personal travel. For those of you that are gluttons for punishment and like to read the IRS documents – here’s a good summary article.
Our goal is to simplify all of this so you can follow the laws, but also get the most out of your travels.
The IRS states that business travel expenses are 100% deductible if your trip is business related and you are traveling away from your regular place of business longer than an ordinary day’s work. You don’t need to travel far to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on business travel.
General Points For Business Travel
- The primary reason for the trip must be related to your trade or business
- The majority of time spent must be related to your trade or business (> 50%)
- Each day counts as either entirely for business, or it is considered to be a non-business day (non-deductible)
- Common deductible expenses include airfares, meals, lodging, rental car, gas/tolls and incidental expenses if they are not otherwise lavish or extravagant.
- Events, movies, plays, golf, sporting events and others are deductible IF the primary reason is for business. If it is not related to business, you can still enjoy them – it’s just on your dime (not deductible).
- The additional expense incurred to have a spouse or children join you is also not deductible, unless they also are a legitimate employee within the business.
- If, on a business trip during the week, a certain day is devoted primarily for pleasure, that day’s expenses are not deductible.
- If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.
- For longer trips, your cost of staying over a weekend may significantly reduce your airfare. The cost savings from the reduced airfare can go toward paying the additional lodging, meals and other expenses for weekend – giving you a tax deductible mini-vacation. Make sure you document both airfares.
- If for any reason you are prevented from engaging in primary business purpose activity due to circumstances beyond his control (delayed or cancelled flights or last minute cancelled events), the expenses are business-related.
How To Plan Your Next Trip
You have found a great business-related seminar that happens to be in Florida in January. Lucky you! How do you make your plans so most or all of the trip can be deducted? Let’s walk through this example.
Who can go on the business’ dime? Is your spouse and/or children on the board or an employee of the company? If so, the company can pay for all of your airline tickets.
The seminar is on Monday, but you want to spend the weekend there basking in the sun. To make the most out of it, you could set up the following schedule:
Thursday: Travel day. All travel and expenses on the date of travel is business-related and can be deducted.
Friday: Work day. Prior to leaving for your trip, make a business appointment with a vendor, partner or prospective client. You could also hold your annual business meeting that day. You must work at least 4 hours to claim it as a business day and deduct the expenses.
Saturday & Sunday: This is a weekend and considered stand-by days. As long as you have business on the Friday and Monday, the weekend expenses are deductible.
Monday: The seminar. This is a clear business day and deductible.
Tuesday: Travel day. All travel and expenses on the date of travel is business-related and can be deducted.
In this example, all the expenses are considered business travel and deductible. If you added days to the beginning or end of the trip for personal vacation, the expenses on those days would not be deductible.
Travel With Unique Rules
Travel expenses are deductible when the purpose of the trip is to attend a conference or educational activities. They are not deductible when the travel itself is considered abstractly as a form of education. For example a French language teacher would not be able to deduct a trip to France with the intent of improve her French language fluency. It would be deductible if the teacher attends a conference that covers the French language.
Conventions and Seminars
The convention or seminar must be directly related to your trade or business.
There are more rigorous reporting requirements for cruises. You must have written statements by both the attendee and an officer of the sponsoring organization. A limited deduction is permitted for conventions on cruise ships if the ship is of U.S. registry, all ports of call are in the U.S. or its possessions, and the meeting is directly related to the taxpayer’s trade or business.
This is even a bit more complicated. Get the advice of your accountant or tax professional when traveling overseas. If you travel outside the U.S. for longer than one week or spend less than 75 percent of your time on business, you may be subject to allocation rules, which partially disallow your expenses. The rules are bit more forgiving if you had no control over the trip agenda or the vacation portion was not a major consideration for the trip.
Document the business purpose for the trip. Keep any supporting document (agenda, business cards, summary of the work products produced, diary of meetings, etc.) and although the IRS only needs receipts for expenses exceeding $75 (except lodging – where it’s receipts are always required) it’s a good practice to keep all of them for thorough documentation.
Little known tip: You can also deduct shoe shines, manicures and dry-cleaning for the clothes worn on the trip! Have your clothes dry-cleaned while on the trip or within a couple days of getting home.
Sean and I both have had some awesome trips. Hawaii was probably my best. We took the weekend between our business activities to surf and enjoy the island.