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You really need a break, but it’s been a tough year for your business and you’re not comfortable spending money on vacation travel. Let Uncle Sam help pay for your business trip. When you tack on personal vacation days to the beginning or end of a business trip, your out-of-pocket costs could be minimal since much of the business portion of your travel could be tax-deductible.
The pairing of corporate and vacation travel is easier for self-employed business owners. But employees also can take advantage of combined personal-business trips.
The key, as with anything tax-related, is substantiating that you followed IRS rules.
Ordinary, necessary expenses
The IRS has no problem with business owners deducting legitimate expenses. As long as the travel benefits or advances your business, you can write off ordinary and necessary expenses.
What’s considered ordinary and necessary? That depends, says the IRS, on the facts and your circumstances. In general, an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business.
Under these standards, deductible travel expenses typically include hotels, meals, entertainment and round-trip travel to meet with existing or potential out-of-town clients.
Convention and seminar costs also could be deductible as long as the conferences specifically relate to your business or profession or help improve your career skills. That’s why so many professional groups hold conventions in vacation spots like Orlando, Florida, or Las Vegas.
Traveling to a business meeting obviously is work-related and the IRS doesn’t really care whether you get there a few days early or hang around for a bit after your business is concluded.
Since you had to travel anyway, you can deduct the cost of your transportation as a business expense when you file your company’s taxes. This applies to auto travel as well as airfare.
“If the primary purpose is business, you don’t have to apportion it even if you spend some personal time,” says Barbara Weltman, tax attorney and author of “J.K. Lasser’s Small Business Taxes 2015.”
In fact, when you fly for business purposes and extend your stay to get a reduced fare by, for example, spending a Saturday night at your destination, the associated stay-over costs usually are deductible, too, even though you have no business meetings that extra day.
The cost of travel by bus, train or auto, either your own car or one you rent, also is deductible. But don’t try to slip in the price of airfare if you got your ticket via frequent flier miles.
Timing is everything
Many people set up out-of-town meetings for late one week and early the next. “That basically requires you be in town, but you have the weekend to yourself,” says Mercedes Infante, an enrolled agent and CPA with BDO USA’s Orlando, Florida, office.
Be sure, though, that you don’t extend your personal stay too long. In order to deduct your transportation costs, your trip must be primarily for business. You do get to count your travel days as business, but carefully calculate the overall work-to-pleasure ratio.
If you spend 3 days getting to and meeting with clients, but bookend the travel with 5 extra days for sightseeing, the IRS will consider your trip more for fun and disallow your travel deductions.
Your hotel costs while conducting business also are deductible. Here, too, you need to differentiate between the portion of your stay that was personal.
For the extra days you stay to enjoy a location’s recreational offerings, you cannot deduct those hotel charges.
Don’t try to get cute here. The IRS frowns on counting a full day as business if you simply schedule a quick breakfast meeting with a client and then spend the other 23 hours on your own. In this case, that night’s lodging will come out of your own pocket, not as a deduction on your tax return.
Speaking of eating, closing a deal over a meal is a time-honored business practice, but the IRS only helps out so much here.
Generally, you can deduct only 50% of your business-related meal costs. That limit also applies to your individual meals on business travel.
As for that breakfast business meeting, it isn’t a total tax loss. Even though it isn’t likely to get you the full day for lodging deduction purposes, you can include the morning meal’s cost — subject to the 50% limit — with your client as a deductible expense.
When collecting your travel, hotel and meal receipts, be sure to note other miscellaneous expenses, too. Many of these work-related costs also are deductible.
You can write off taxi fares to and from the airport (or other transportation hubs, such as a train or bus station), as well as local fares from the airport to your hotel. And don’t forget the cab costs from your hotel to your business meetings (and back).
If you shipped work material to your meeting destination, that expense is deductible. So are the extra charges you incur for business calls while on your trip, as well as Internet connection fees.
If your trip lasts longer than you planned, dry cleaning and laundry fees paid to make you look presentable also are deductible.
Taking family along
If you want to make a real mini-vacation out of your next business trip, take the family along. Just be prepared for more diligent record keeping.
Your spouse’s and children’s expenses won’t be deductible unless they work for your company and are involved in the out-of-town business meetings. The tax code will, however, pay for at least part of your expenses. In some cases, that could be more than you expect.
Take lodging. When you share a room, the charge for added occupants typically is not double the fee for 1 guest. That means that for the days you conduct business, most of your family-shared room will be deductible.
And while only your airfare is deductible if you fly, when you drive to your out-of-town meetings, the mileage is fully deductible even with your family along for the ride, says Weltman.
It also works for employees
If you are an employee, you also might be able to take advantage of company travel for a bit of a personal break.
“Make sure you follow the company policy,” says Infante, who previously worked in the finance offices of several large corporations. This means keeping receipts and documenting the business portion of the travel, she says, since many firms base their employee travel policies on tax code guidelines.
Also keep in mind that the rules are somewhat different when business travel is outside the United States. In those cases, you still might be able to deduct some travel expenses, but check with your employer or your own company’s tax adviser beforehand to ensure that the trip abroad goes smoothly on personal, business and tax levels.