Turning Business Vacation Expenses into a Tax Deduction

02 Mar, 2017 / Comments: Comments Off on Turning Business Vacation Expenses into a Tax Deduction / By

Vacations are a wonderful thing.  They allow you to rest and recharge away from the daily stresses of work.  For many people, that long desired vacation of soaking up the sun on the beach, or exploring a new city just isn’t in the cards.  Either it’s not in the budget or you just don’t have the time.  As a business owner, you already know that you can write off travel expenses for business-related travel, but did you know that you can also write off your vacation? You just need to follow a few rules.

 

Make All Appointments Before You Leave

You can’t just go to your dream destination and claim it’s a business trip.  Nor can you travel and then meet contacts and set up business meetings.  In order to qualify for deductions, you must have at least one business meeting arranged before you take off.  You may have to prove that your meetings were scheduled prior to your departure, so keep copies of emails from your contacts as well as your calendar.

 

Your Trip Must Be Mainly Business

While you may be using the trip to take a vacation, your trip must be at least 75% business related.  You must also be gone for longer than one business day.  If you meet these criteria, you can deduct all of your travel expenses, whether you fly or drive.  You can also deduct hotel and car rental (or cab) fees as well as half the cost of your food, but only on regular business days.  Even expenses such as dry cleaning, laundry and a haircut can be deducted so long as they are absolutely necessary for you to conduct business.  Keep your receipts and document your expenses.

 

Plan Wisely

The IRS allows for travel days, as well as weekends and holidays, to be counted as business and travel days, so if you plan wisely, you can squeeze in a little rest and relaxation between meetings.  For example, you can leave on Wednesday, have meetings Thursday, Friday and Monday, and then fly home Tuesday, and all six days would be considered business days.  An overstay is also fine, so long as it doesn’t run too long (which would mean your trip is less than 75% business). Aside from the cost of your travel, all other expenses incurred are considered personal and cannot be written off on your tax return.

 

Your Family’s Expenses Can’t Be Deducted

You’re using your business trip as a vacation, so it’s not surprising that you’d want your family to come with you to enjoy some quality time together.  You can still deduct the expenses you would have incurred if you were going on the trip by yourself, but you cannot deduct anything incurred by your family.  For example, only your plane tickets are deductible if you need to fly.  However, if you drive, the mileage still counts, because it’s the same cost whether your family goes or not.  Your hotel room is deductible if you stay in a room similar to what you would have on your own.  Only your food costs and cab fare are deductible.  A rental car may not be deductible if your family uses the car while you are in a meeting.

 

Overseas Travel or Cruises

Most travel deductions only count if you are traveling within the United States. If you plan on leaving the country or going on a cruise, the IRS has strict rules about what is and isn’t deductible.  Before you head out on an adventure out of the country, make sure you consult the IRS’s regulations about these deductions in order to avoid any issues come tax time.

 

Vacations can be beneficial.  A little bit of rest, relaxation and fun can go a long way in improving your mood, lowering stress and increasing your productivity at work.  With the right planning, and following all of the IRS regulations, there’s no reason why you can’t combine both work and play.

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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