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This featured post, will help save on your travels with tax deductions you may not know about. Thanks to David for sharing his expertise.
When you convert your vacation into a business trip, your transportation expenses suddenly become deductible. When you travel for business, you deduct the expenses. Think of the tax deduction as a travel discount. The size of the discount depends on your tax bracket. That could easily amount to savings of 30, 40, 50, or even 60 percent.
Image: Copywrite @ MapleLeopard.com- Airfare, including first-class tickets and even flying your own plane
- The presidential suite in a luxury hotel
- Rental car expenses for a Rolls-Royce
- Boat tickets—and yes, this includes cruise travel
in-laws two states over; you could save a boatload in taxes when you turn your vacation into
a business trip and deduct most or all of the cost.
Types of Travel Expenses
When you travel for business, you can deduct two big types of expenses:
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 deduct 100 percent of your direct-route transportation expenses. If the majority of your days are personal days, you getzero deductions.
Life Expenses
During travel, you can deduct the cost of sustaining life—these expenses includelodging and meals. You can deduct these expenses on business days but not on personal days.
The Basic Rule on Business Travel
According to the tax code, you can deduct your travel expenses as long as your trip is an “ordinaryand necessary” cost of doing business.
The courts have interpreted this rule extremely 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 butrather to something that is “appropriate and helpful.”
As a result of this broad interpretation, the tax code rule isn’t very helpful unless you know more.That’s okay. We know it’s hard for our friends in Congress to come up with simple, clear rules.
To get the real story on business purpose, you have to sift through case law and see what the courtssay in particular cases—which we do for you beginning with the next section.
The Real Test
When courts decide business purpose cases, they consider all the relevant “facts andcircumstances,” which for our purposes means we have to compare and contrast each case to findthe overarching, guiding principles we can use in practice.
We have summarized the case law into five rules that you can use to justify a business purpose foryour trip:
Profit motive
You need to have a reason why the trip will help your business make money. You don’thave to show an immediate profit, but you must expect the trip to create profit for you at some point inthe future. Write this reason down in your records.
Stay overnight
Remember the overnight rule. You get deductions only for business trips on which youstay overnight away from your tax home.
Apply the “for only” test
When you plan your trip, ask yourself: Would a rational businesspersontravel for only the business reason—or is the personal element so important that it destroys thebusiness purpose?
Primary Purpose test
For travel in the United States, you need to pass the primary purpose test. Theeasy way to do this is to make the majority of your travel days business days.
Maintain good records. This may be the most important step for your business travel deductions. Youmust keep the right records, as we explain below.
Examples
Board Meetings in Resort Locations
During the trips, the corporation conducted the annual board meeting, and then the corporateemployees met with their business guests to discuss underwriting policy and other topics related tothe business. All travel expenses were deductible (except for those for non-business spouses andfriends).
The corporation needed to hold the meetings in interesting locations to ensure that theirbusiness guests would attend. The corporate employees benefited through the business discussionsand by strengthening their relationships with other businesspeople in their field.
The trips gave you the opportunity to expand your business by finding new clients.
Justifying Travel with a Convention or Seminar
Conventions are a great reason to travel, since they often take place in areas that double as nice
vacation spots.
Travel expenses to conventions inside the North American area are deductible if the convention
advances the interests of your business.
Conventions outside the North American area must relate directly to the conduct of your business,and it must be reasonable for the event to take place in the chosen location.
If you could have viewed a streamed lecture from home, you get no travel deductions.You cannot deduct the expenses when the seminar relates to one of your investment activities andnot to your trade or business.
Records to Keep
Tax law requires you to keep records of the following elements as proof of your business travel:
- The amount of each separate expenditure for traveling away from home
- The date of departure and return for each trip, and the number of days during the trip spent onbusiness
- The name of the city or town you visited
- The business reason for the travel or the nature of the benefit you expected to gain from the travel.
Takeaways
If you are thinking of going on a vacation, try mixing in some business. If you find the right businessreason and spend enough time on business during the trip, you can make your travel expensesdeductible.
Bio:
David E. Webber has 50 years of experience in tax preparation. He has Bachelor of Science in Accounting and Master of Business Administration degrees. During his 50 years of experience, he achieved the designations of Certified Public Accountant, Certified Financial Planner, Certified Management Accountant, Certified Divorce Financial Analyst and Enrolled Agent.
Visit David's website and travel business . Mr. Webber can show you a simple way to start a business if you don't have one.
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