Do you travel out of town for business, and sometimes tack on a few vacation days? If so, then you should plan your trips with the tax rules in mind. Knowing the angles could make a big difference in the after-tax cost of the trip!
You are permitted to deduct travel expenses when you travel away from home on business. A business trip is “away from home” if it takes enough time that you may be reasonably expected to need sleep or rest. There’s no prohibition against enjoying personal activities while on a business trip, but the primary reason for the trip must be related to your trade or business.
Generally, if a trip is taken primarily for business reasons, then 100 percent of the expense (including all of the airfare and the lodging on business days) is a business expense. However, meals and entertainment are only 50 percent deductible. Other expenses deductible on a trip taken primarily for business include business-related car rental, taxi fares, cleaning and laundry expenses, telephone, tips, travel insurance, visa fees, customs fees and books about the destination.
If the trip is taken primarily for personal reasons, then only the expenses directly allocable to the meeting are a business expense. This includes lodging for the business days and meals for the business meeting(s), but none of the airfare.
How do you determine whether a trip is primarily business? An important factor is how you split your time. For example, if you only spend one day of your week in a business meeting, and the rest is essentially a vacation, then it is primarily personal. Generally, departure and return dates are considered business days. As long as you do business during working hours, other personal activities, like an evening out on the town, won’t turn the business day into a personal day.
Under some circumstances, weekend days can be considered business days. For example, if you have business meetings on Thursday, Friday and Monday, and it is not practical to go home in between Friday and Monday, then the weekend may be considered business days, the expenses for which are deductible (50 percent of meals, 100 percent of lodging). Saturday night stay-overs also might be considered deductible if the savings in airfare are higher than the additional costs of the weekend meals and lodging. If your meetings conclude on Friday but airfares are lower on Sunday than on Friday night or Saturday, this may apply to you.
Additional rules regarding the airfare deduction apply to trips to foreign countries. If the trip has even one personal day, then you must meet one of four requirements in order to deduct the airfare:
– No substantial control over arranging the trip.
– You are away one week or less.
– Less than 25 percent on personal matters.
– Vacation is not a major consideration.
With proper planning, business trips can yield great personal pleasure while generating legitimate deductions. Call your tax adviser for specific guidance on your travel plans.
Mary Decker is a CPA, Certified Financial Planner and a principal of Hascal, Sjoholm &Co., a full-service CPA firm in Everett. She specializes in tax and estate planning. She can be reached online at www.hascal.com or at 425-252-3173.
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