Tax Tips
Planning your Summer Vacation? Mix Business with Pleasure - October 2007
Richard Scrivanich - Partner
By knowing the rules and following them carefully, you can get the IRS to help cover the costs of your summer travels. But remember that this tactic taken to excess can be an expensive mistake.
In general, travel and entertainment (T&E) deductions attract a great deal of IRS scrutiny-especially true if these items are large in relation to your income. IRS agents can easily understand these expenses and questions are likely to be raised.
On the record
When an IRS agent questions you about your T&E deductions, you had better have answers. That's why it's vital to keep records showing where you traveled, whom you entertained, how much you spent, and the business purpose of each expenditure.
Generally, the most important factor is being able to show that a trip was primarily for business. If you can do so, your travel expenses (such as airfare) will be fully deductible along with some if not all of your hotel bills.
Suppose, for example, you take a business trip that lasts from Monday through Friday. After you've completed all your business meetings, you spend the next weekend (and even the following Monday) at the same hotel, playing golf and tanning by the pool.
Because you devoted more time (five days) to business than to pleasure (two or three days), your airfare will be deductible. Although you can't deduct hotel and meal costs for personal days, such costs may be written off if they relate to business days.
Continuing this hypothetical example, you must demonstrate that the first five days really were focused on business. A log will help, and so will copies of pre-trip correspondence (including email) arranging meetings. You also should follow up on your meetings: not only will this strengthen your tax position, it's likely to help you reap rewards from those discussions.
All in the family
Summer vacations usually involve traveling with your family. How will that affect your tax deductions?
When it comes to hotel bills, you can deduct the cost you would have paid traveling alone-which generally is more than 50% of the double room rate. Ask your hotel for a room rate schedule showing its single rates for the days you're there.
Foreign travel
Special rules apply for business trips outside the United States. Generally, all costs, including transportation, must be allocated between the business and personal portions of your trip.
However, if the major reason you took the trip was not for a holiday or a vacation, you can take a 100% travel write-off and deduct a substantial share of other costs. Again, you should keep records to demonstrate that the principal reason for taking a trip was business-related.
Although only amounts directly allocable to business are deductible, you can avoid the allocation issue if you are out of the country seven days or less. The primary purpose of the trip must be for business in order for anything to be deductible.
Tax-Free Fortnight
While you're traveling this summer, for business or pleasure or both, you might rent your house while you're away. If you live in a prime tourist area or near the site of a major gulf tournament, you might be able to collect thousands of dollars for a two-week rental.
What's more, those dollars can be tax-free. Under the tax code, you can rent a home for up to 14 days per year without having to declare any taxable income.
If you have any questions regarding rules for mixing business with pleasure or any other tax matter, please feel free to give me a call at (562) 698-9891.
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