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Guidelines for Deducting Business Expenses While on Vacation

We have passed the mid-year mark and by now we are all ready to hit the escape button and go on a nice vacation. Are you dreaming of relaxing on a white sand beach? Maybe you are a ski lover? How about visiting a big and exciting city like New York? No matter what your dream vacation is, if you are self-employed or a business owner you have the ability to write off that vacation. Who said you can’t mix business with pleasure?

If you are mixing business with pleasure on your vacation there are some business travel tax deductions you won't want to miss out on.

What You Need to Know in Order to Expense Parts of Your Vacation:

Business/Pleasure Ratio

In order to deduct business travel expenses while on vacation, the primary purpose of the trip must be business and the expenses must be ordinary and necessary for your business. If you are traveling for more than a week, then at least 75% of the trip must be business related.

As a general rule of thumb, you should count up the number of business and personal days in your planned trip; the majority of days must be for business activities. Keep in mind that your travel days can count as business activities, and so does a weekend that’s sandwiched in between workdays on Friday and Monday.

Plan Your Business Ahead of Time

Be aware that you can’t just take off to Hawaii with some business cards and hope to trip on some business. The IRS requires that you establish prior set business purpose. In other words, you have to have at least one business appointment scheduled before you leave.

You will be able to deduct your transportation costs, like airfare, taxis, airport parking, rental cars, your lodging, baggage fees, dry cleaning, tips, 50% of your food costs, internet connection, conference fees and any other business related expense.

Don't Be Extravagant

When deducting business travel be careful with lavish or extravagant expenses such as renting a Ferrari or staying at luxury suite as those may not be ordinary and necessary expenses when traveling for business and may trigger an IRS probe. Also, avoid claiming personal expenses such as shopping, personal grooming, etc.

You are also able to expense your travel to a convention as long as you can prove it’s directly related to your trade or profession. In addition, the IRS also considers the location of your conference or convention. For example, did you really need to attend that conference in Paris when there was a similar one held in Boise? If you are considering attending or expensing travel to a conference (particularly one outside of North America/the Caribbean), you should speak with a tax advisor or take a close look at the rules outlined in Pub 463.

Traveling with Family

If your family is coming along on a business trip, it will not disqualify you from any write-offs. You can still deduct a substantial portion of the trip’s cost. The cost of a hotel room will still be deductible, but only up to what a single room would cost. For example, if a single room at a hotel would cost $175 and a family room costs $200, then only $175 would be deductible. The cost of a rental car for the family will be fully deductible since the cost is the same regardless of how many people are in the car. Meals can be deducted only for you and for your spouse if the spouse is an owner, an officer or an employee of your business.

Compile the Proper Documentation

As with any write off, you will need to keep track of your deductible expenses and maintain accurate records. Save your receipts, invoices and any other document showing what you purchased, the amount and when you purchased it. Don't co-mingle personal expenses with business expenses. Use a separate card for all your business or job related expenses.

Finally, don’t push the rules and try to claim personal expenses or purely social vacations. However, there is no reason your kids or spouse can’t join you on business trips so you can tack on a few extra days of fun.

About the Author
Michael Atias

As an enrolled agent with the IRS with an MBA from Washington University in St. Louis, Michael brings a passion for educating and helping investors achieve their financial goals.


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