Deducting your summer vacation on your taxes
Did you know you could deduct your airfare, hotel, car expenses and 50% of your meals while on vacation? With some proactive tax planning, you could be saving lots of money for your business!
Business owners have an advantage over employed taxpayers, and this reflects on the deductions they can take during tax time. The IRS allows business owners to deduct the monies spent while on vacation as long as they meet certain requirements.
What can be deducted
The IRS allows you to deduct airfare, hotels, car rentals, taxis, 50% of your meals, laundry, manicures, and dry-cleaning costs for clothes worn on the trip as long as you meet the rules established by the IRS. The cost incurred on leisure activities, however, cannot be deducted. For example, if you go to the beach during your vacation, and decide to rent chairs and umbrellas, you will not be able to deduct these expenses.
Requirements you must meet
Rule #1 More than 50% of your time must be spent on business-related activities
In order for your vacation to be deductible, you must first make sure that more than half of your trip has some sort of business activity, whether that is a seminar, a meeting, or an event you that somehow relates to your business. Travel days are considered business days by the IRS. If you travel on Wednesday morning, even though you may spend the afternoon at the hotel pool or touring the city, the IRS will consider this day as a “business day”.
Rule #2 You must begin and end your vacation with a business activity
In order to deduct airfare, hotel, car expenses and 50% of your meals, you must begin and end your vacation with a business activity. For example, if you travel to New York from Friday to Monday, you could attend a real estate seminar on Friday and have a meeting with potential investors on Monday in order to deduct the expenses incurred on Saturday and Sunday while you enjoyed the beach. The good news is, these meetings and events do not need to take up the entire day! If your meeting lasts 1-2 hours, that is enough for the entire day to count as a business activity.
Rule #3 You must schedule your business events prior to leaving for your trip
In order to prove that you actually traveled for business, you must have scheduled your meetings, seminars and events in advance, and have written evidence of such. If you go to an event that you happen to see on the street while walking the streets of Rome, it will be difficult to prove to the IRS the “business purpose” for your trip.
However, if you schedule lunch with a potential business partner prior to leaving for your trip, you have met the IRS rules and are allowed to deduct the expenses on your taxes.
Conclusion
The IRS allows you to deduct travel expenses as long as your trip has a “business purpose”, which you prove when you meet all three rules explained above. Make sure you take advantage of this great tax strategy this summer. Meet with your CPA to plan accordingly and let your business pay for your vacation!
