For many, summer vacations are a way to relax and unwind and enjoy what is usually sunny, warm weather. Maybe your ideal vacation destination is a beach; perhaps the lake or mountains. Paying for dream destinations can be challenging, though. Have you considered turning your vacation into a tax deduction? It’s possible.
Active Versus Passive Business Trip
The answer is to combine your vacation into a business trip. There are two different types of business trips: active and passive.
With an active business trip, you’re required to make and maintain business appointments. If your client is located in some dream destination, make it a point to visit that client. Although you’ll need to keep very careful records, the entire trip could be tax deductible as a business expense.
On the other hand, passive business trips are when business happens to you. For example, conferences, conventions, or continuing education courses. The event should be directly related to your job or career and include training to improve your skills or knowledge. You can’t deduct the trip if you receive training for a new career, though.
How to Deduct Business Trips
With either type of business trip, your airfare and hotel stay are tax deductible. So are your meals and expenses, but not your companions’ – if you take your spouse or family. Keep scrupulous written records of all business expenses, and write the purpose of the transaction on each original receipt.
With passive trips, be sure to:
- Schedule your travel to arrive the day before and depart the day or two after the conference or convention
- Attend at least four hours of continuing education each day you claim business expenses
- Stay within the United States
During active business trips, you will need to:
- Count your working days, especially if you have personal days in between
- Prorate your air travel for international trips, if the trip included non-business days
There are exceptions for international business trips. You can read the details on IRS Publication 463 here. In general, if your trip was for a week or less, you had no control over the schedule, you spent less than 25 percent of your time on personal activities, or vacation was not a primary consideration, the entire trip can still be tax deductible.
Travel to and from your business destination, including airplane, train, bus, or car
- Taxi fare and tips
- Lodging and meals
- Dry cleaning and laundry
You can deduct 50 percent of your meals, provided they’re not lavish or extravagant, using either the actual cost method or standard meal allowance. As far as entertainment expenses, you can deduct them to entertain a client, customer, or employee and if the entertainment meets the IRS’s directly-related test.
What if you go on a trip where you attend one or two meetings? You cannot deduct your trip costs, but you can deduct the registration fees for the meetings you attend.
With a little planning and a lot of record-keeping, your next vacation could work for you. Contact us for more information on smart tax planning strategies you can use year-round.