If you’re planning a business trip this summer, consider adding a few days of “R&R” to create a partially tax-deductible vacation.
The rules for travel-related tax deductions can be complicated, so you may want to speak with your tax adviser as well as your travel agent.
If the trip is primarily for business and within the United States, the cost of your transportation is fully deductible both ways. International travel rules and the rules for attending seminars held aboard cruise ships are different. Consult your tax adviser if you are traveling aboard ship or out of the country.
Cruises are also subject to special rules. To be deductible, a business-related cruise has to be aboard a ship registered in the United States and must avoid foreign ports. You can deduct up to only $2,000 per year regardless of the length or frequency of travel, and you have to file a detailed written statement with your tax return.
Assuming your travel is within the United States, adding a few extra days on either end of the business trip will not disqualify your business deductions. As long as the primary purpose of the trip is business and you have the necessary documentation, your business deductions are allowed. You cannot deduct any expenses related to the recreational part of the trip.
You also cannot deduct expenses for anyone traveling with you who is not involved in the business of the trip. However, if you pack everyone into one car (yours or a rental), your deductible transportation includes the cost of getting the entire family to the destination.
And if everyone shares a single hotel room, it is deductible, too. However, any fees for added occupants or an upgrade to a larger room to accommodate the family are not covered.
During the business portion of the trip, your meals and those of your business associates are deductible at 50 cents on the dollar.
Any kind of travel tends to involve several incidental costs, such as taxi fares, Internet access fees, phone calls, tips and laundry charges. These costs are deductible if they are business-related.
Any time you travel for business, keep good records, not just receipts but anything that helps prove your business purpose – itineraries, agendas, programs and the like. The IRS will balk at expenses considered lavish or extravagant. Your expenses should be reasonable based on the facts and circumstances.
You will have a difficult time claiming a vacation is a “business trip” just because you keep up with work emails or pop into a branch office in Orlando on the way to Disney World. To be safe, the business portion of the trip should clearly be well in excess of 50 percent of the total time. The IRS is clear: “The scheduling of incidental business activities … will not change what is really a vacation into a business trip.”