Writing Off Your Travel Expenses
Ah, a tax-deductible vacation. Sounds too good to be true, right? It’s not if you take the proper steps. This article will outline the rules and the necessary steps to fully deduct your vacation on your tax return.
What are Travel Expenses?
Travel expenses are one of the most underused deductions by small business owners. With just a little bit of planning, you will be able to deduct 100% of your airfare, hotel, Airbnb, car rental, meals, parking, Uber, and more. My clients are often shocked at how much travel expenses they can deduct through their business.
Four Ways You Can Deduct Your Vacation
Before discussing the steps to write off your vacation, I’ve provided four ways to give your vacation the business purpose the IRS requires.
1. Meet With a Client or Vendor
Every time you travel, find an opportunity to meet with a client. If you have a client or vendor nearby the city you are visiting, find the time to sit down with them. The simple act of meeting a client or vendor face-to-face will make your vacation eligible to be tax-deductible. Additionally, you can get an even bigger tax break if you meet with them over a meal.
2. Attend a Conference or Training Event
In almost every major U.S. city, there are professional clubs, organizations, conferences, and continuing education courses that you can attend. When planning a vacation, look for these events so the IRS will consider your trip a valid business purpose. Not only are these events a great way to save taxes, but they are also a great networking opportunity.
3. Check on Your Rental Property
I typically advise clients to purchase a rental property in places they frequently visit or have family members. This way, every time you visit that city and check on your rental property, you can deduct the cost of your visit. So now you have a reason to be excited to see your in-laws!
4. Hold Your Annual Board of Directors, Shareholder, or Member Meeting
Most business owners see the annual meeting as a chore. However, this is an excellent opportunity to take a tax-deductible trip that you would probably take anyway. Just make sure you take good notes and document the meeting minutes if the IRS comes knocking.
A Travel Rule to Keep in Mind
You can get in trouble if you try to write off too much personal time as a business expense. It is important to keep some rules in mind when planning your vacation.
Travel days are fully deductible. This is true regardless of whether you are conducting business on those days. However, you cannot fully deduct travel for a week-long vacation in the Bahamas if you are only doing business on one day. This is because if you are traveling for a week-long vacation, you would have to be conducting business for the majority of the time. So, if you went to the Bahamas for seven days, five of those days would have to consist of you conducting business.
However, suppose you are traveling on Thursday and doing business on Friday and Monday. In that case, the full cost of travel will be deductible.
How to Structure a Tax Deductible Vacation
Below I outline my schedule for how I can fully write off my vacation on my tax return.
Thursday: Fly-In
As discussed earlier, travel days are entirely tax-deductible. My travel day will be fully tax-deductible because I plan to conduct business on Friday and Monday.
What Can I Deduct?
- Airfare
- Parking at Airport
- Uber or daily rental car costs
- Nightly hotel cost
- All Meals
What Can't I Deduct?
- Entertainment and personal activities
Friday: Business Meetings or Conferences or Education
My Friday will be fully tax-deductible because the primary purpose of my day was to conduct business. After I finish my business meetings, I will have the rest of the day to enjoy my vacation.
What Can I Deduct?
- Nightly hotel cost
- Uber to business-related events
- Rental Car
- Business Meals
- Dry Cleaning
What Can't I Deduct?
- Non-business Meals
- Entertainment and personal activities
Saturday And Sunday: Personal Time
I will not be conducting any business on these days. But since I plan on conducting business on Monday, I am stuck in this city. Therefore, I am still entitled to some deductions.
What Can I Deduct?
- Nightly hotel cost
What Can't I Deduct?
- All Meals
- Ubers
- Rental Car
- Entertainment and personal activities
Monday: Business Meetings Or Conferences Or Education
Since the primary purpose of my Monday is to conduct business, it will be treated the same way as Friday.
What Can I Deduct?
- Nightly hotel cost
- Uber to business-related events
- Rental Car
- Business Meals
- Dry Cleaning
What Can't I Deduct?
- Non-business Meals
- Entertainment and personal activities
Tuesday: Fly-Out
Same as Thursday, travel days are fully deductible. Tuesday is fully deductible because I conducted business on Friday and Monday.
What Can I Deduct?
- Airfare
- Parking at Airport
- Uber or daily rental car costs
- Nightly hotel cost
- All Meals
What Can't I Deduct?
- Entertainment and personal activities
Can I Deduct Travel for my Spouse?
As long as your spouse is an employee or on the Board of Directors of your company, you can deduct their travel expenses. It is easy to set up a Board of Directors for your company so you can take advantage of the travel deduction.
You do not have to file any documents with federal or state governments. The only requirements are:
- You create an internal document that lists the members of your Board of Directors and their roles.
- You document your annual meeting minutes with your spouse in attendance.
Beware of Cruise Vacations
It is also not a wise decision to try to take a tax-deductible cruise vacation. This is because the IRS has set a $120 daily LIMIT per person for cruises. So even if your actual expenses are $500 per day, you can only deduct $120. Additionally, the IRS probably isn’t going to buy that your booze-filled tropical cruise was primarily for business.
Conclusion
Taking a tax-deductible vacation is a great way to save some taxes and have a good time doing it. However, we know that it can seem complicated and a little scary. But, if you follow the steps outlined in the article, you will have nothing to worry about.
At Windstone Financial, we help small business owners with all of their tax and accounting needs. If you have any questions or need help planning your tax-deductible vacation, do not hesitate to click the button below to speak to a CPA.
