Here’s How You Turn Your Vacation Into Tax-Deductible Business Travel

January 17th, 2015 at 6:08 PM

Isn’t it about time you took a vacation?

You can solve both the time and cash problems when you convert the vacation into a business trip, and deduct your travel expenses.

When you travel for business, you can deduct 2 types of expenses:

1. Transportation Expenses. The cost of transportation in the 50 states and Washington D.C., is an all-or-nothing expense. If you spend the majority of your trip days on business, you can deduct 100% of your direct route transportation expenses. If the majority of your days are personal days, you get zero deduction.
2. Life Expenses. During travel, you can deduct the cost of sustaining life-these expenses include lodging and meals. You can deduct these expenses on business days, but not on personal days.

According to the tax code, you can deduct travel expenses as long as your trip is an ” ordinary and necessary” cost of doing business. The courts have interpreted this rule broadly. For example, an “ordinary” expense does not have to be a common practice in the industry; “necessary” does not refer to a business need, but rather to something that is “appropriate and helpful.”As you can see, the tax code is not very helpful here. Therefore, to get the real story, one has to sift through case law to ascertain what the courts say in a particular case. That’s what I have done to arrive at the rules to discuss next.

Here’s 5 Rules to Justify a Business Purpose for Your Trip

1. Profit Motive. You need to have a reason why the trip will help your business make money. You do not have to show an immediate profit, but you must expect the trip to create profit at some time in the future. This reason needs to be documented.
2. Stay Overnight. Remember the overnight rule. You get deductions only for business trips on which you stay overnight away from your tax home.
3. Apply the “for only” test. When you plan your trip, ask yourself whether a rational businessperson would travel for only the business reason documented-or is the personal element so important that the trip does not make sense without it?
4. Primary Purpose Test. For travel in the United States, you need to pass the primary purpose test. The easy way to do this is to make the majority of the days business days. For tips on how to achieve this, please contact me.
5. Maintain Good Records. This is the most important rule to secure your business travel deduction.

Documentation

You must keep the following records as proof of your business travel”

• The amount of each expenditure for traveling away from home.
• The date of departure and return for each trip, and the number of days during the trip spent on business.
• The name of the city or town visited
• The business reason for the travel or the nature of the benefit expected to gain from the travel.

For more information on the documentation requirements, please request my white paper on IRS Code Section 274.

If you are considering a vacation, try mixing in some business. If you find the right business reason and spend enough time on business during your trip, you may be able to make your business travel expenses tax deductible.