With the new year comes a renewed interest in travel. Increased vaccines and vaccination rates are making travel safe once again. There has never been a time when getting out of the house and taking a vacation, has been more needed. The only thing better than a memorable trip is one that comes with a discount. If you are willing to do some planning in advance to intersperse your trip with business, that discount could arrive in the form of tax deductions. Here are some tips to maximize your deduction while staying totally within the rules of the IRS.
1. Plan your trip in advance
It is important that you plan at least one appointment before you leave on your trip. In order for travel to be deductible, the IRS requires that you meet the “prior set business purpose” clause, which means you are not allowed to travel and hope that you will find a business reason once you arrive. Making your appointments early will ensure you fulfill this requirement. These appointments could take the form of a meeting with an existing or prospective customer, vendor or employee. Just be sure to document the business purpose and keep a copy of all correspondence/advertisements related to the trip.
2. Make the majority of the days count as “business days”
According to the tax code, if the trip is within the United States and the majority of the days are considered business days, the entirety of the travel expenses are deductible. Business days include the day of travel to the location, any days used primarily for business, days where there is a business purpose that requires your presence, and any weekends that fall between other business days. So, if you fly to New York on Thursday morning, meet with a client on Friday, spend the weekend sightseeing, meet with another client on Monday, and fly home Tuesday evening, the entirety of your transportation to and from New York is 100% deductible. In addition, meeting these requirements means that 100% of lodging and transportation expenses are deductible. Meals are deductible up to 50%.
In the above example, the traveler accumulated six business days of travel. They could spend another five days having fun and still deduct all their transportation to New York as the majority of the days were business days (six out of eleven). However, they can only deduct six days of lodging, and other travel expenses. Not bad deal for an eleven-day trip to the Big Apple!
3. Only your portion of the expenses are deductible
Unfortunately, the IRS doesn’t agree with “the more the merrier.” Keep in mind that only the portion of expenses related to the individual doing business are deductible. If you own the business and decide to take a business trip with a spouse and a child, only your portion of the expenses are deductible. Similarly, you can only deduct the cost of lodging up to the amount that it would have cost only you to stay.
4. Keep good records
It doesn’t matter where you go or the nature of the business conducted on the trip; good record-keeping is essential. Keeping track of your schedule and expenses will help you to know exactly how much can be deducted and also gives you a layer of protection if the IRS comes asking questions. Make sure your book is in order and enjoy the trip.
Wherever you travel for business this year, keeping these tips in mind will help you maximize your deduction while staying in line with the rules the IRS has set. Please let us know if you have questions concerning tax deductible business travel or any other tax compliance or planning issues, we can be reached at (480) 980-3977!