As we head out for summer vacations, many of us will be traveling to our favorite lake, beach or city to relax for a few days and kick off the Summer Season. With a little creativity and planning, you can make a portion of a future trip a tax deductible expense.
As long as the trip is considered taken “primarily for business” all of the transportation costs are tax deductible, even though you make a stop along the way for pleasure. For example, three days of golf at the end of a business trip can be subsidized by the tax break.
Primarily for Business
There are no hard and fast rules here, and the personal portion of the trip doesn’t have to occur at the business location. Treasury Regulations indicate that the split of time between business and personal pursuits is “an important factor”, but as a practical matter, in most cases any additional costs of the personal portion of the trip are treated as compensation or reimbursed to the business by the owner.
A Personal Day by another Name
The “common sense test” would treat Saturday night spent at the business meeting location because of savings in airline fares, or weekends that straddle business meetings on Friday and Monday as business days, and any costs for hotel, meals and incidentals would be fully deductible. If you find yourself on an extended out of town assignment, a trip home for the weekend is deductible up to the amount that would have been spent for meals and lodging out of town.
Companion expenses aren’t deductible, unless they are also traveling for the same business purpose and are an employee of your business. However, only the additional costs of the second person are excluded, not a flat 50%.
Good Documentation is Key
As with any tax deduction, good documentation wins the race. An in depth discussion of this topic is set for a future posting. Suffice it to say that you need to be able to prove that you didn’t deduct the additional costs of the personal portion of your trip to make this an effective tax saving strategy.