Tax Tips
Combined Business & Vacation Travel Expenses - September 2004
Richard Scrivanich - Partner
If you’re thinking of combining business with pleasure by adding a few days of vacation to your business trip, take the time to understand the tax implications. Here’s what you should know before finalizing any reservations.
Deducting domestic trips:
When traveling within the United States and mixing business and personal activities, you can deduct 100 percent of travel expenses to and from the destination if the trip is primarily related to your business. Lodging, 50 percent of meal costs, and other qualified business expenses also are deductible for the days you spend on business, but only to the extent that they would have been incurred if the trip had been totally for business.
There are no hard-and-fast rules for determining whether your trip is primarily for business or pleasure. However, the determining factor is how much time you spend on each activity. For example, if you spend six days on business and three days vacationing, you may deduct the full cost of getting to and from the business destination, even if you spend the last three days on the beach. Travel days count as business days when making your calculation.
Reverse the allocation between business and pleasure (three days on business and six on pleasure) and none of your travel expenses would be considered deductible. However, you could write off any expenses you incur at your destination that would qualify as business deductions. If, for example, while you and your family are vacationing in California, you take a customer out to lunch to discuss business, your transportation to and from the customer’s office and 50 percent of the meal cost would qualify as deductible business expense.
When staying over on Saturday night results in a lower airfare and net cost savings, you may deduct 50 percent of meal costs, lodging, and other business-related expenses incurred for the additional night. This is because the stay has a business purpose of cutting travel costs.
When business takes you abroad:
When your destination is on foreign shores, you must allocate your travel expenses in proportion to the number of days you spend on business and personal activities. However, several exceptions to this rule apply.
First, you don’t have to follow the allocation rule if you are out of the country for seven days or less (not counting the day you leave the United States, but counting the day you return). That means if you fly to London for a four-day meeting and sightsee for two days, your travel expenses are deductible.
The allocation rule also does not apply if you are out of the United States for more than a week, but spend less than 25 percent of your time on nonbusiness activities. (In this case, both the day of your departure and the day of your return count as business days.) Additionally, you are exempted from the allocation requirement if you have no substantial control over the arrangement of the trip.
When family joins you:
Pack the family into the car for the joint business/vacation destination, and you can deduct the total cost of driving back and forth, even though others are in the car. However, if you fly with your family to your destination, only your airfare is deductible. When you share your hotel room with family members, you may deduct the cost of what you would have paid for a single, rather than a double, room. Just be sure to ask the hotel to note the single rate on your bill.
Recordkeeping is key:
Keep in mind that the IRS pays close attention to deductions claimed for business travel. Maintain a log to substantiate your business activities. Include the dates of departure and return, the number of days spent on business, and the reason for the travel.
If you have any questions regarding deducting combined business and vacation travel or any other tax matters, please give me a call at (562) 698-9891.
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