How to maximize the tax benefits of business trips
Are you planning a business trip to a distant city? If the destination is known for its cultural attractions or recreational activities, you might want to combine your business with a little pleasure. In fact, this could be a chance to get away after the children have gone back to school or to just spend some quality “alone time” with your spouse.
The good news is that the bulk of your expenses are deductible if you handle things the right way. However, if you are not careful, you could run afoul of some tricky tax rules.
Background: Generally, you can deduct business travel expenses from your home to another part of the country if the primary purpose of the trip is business-related. (Special rules apply to foreign travel expenses. We will cover foreign travel in a future issue.) This includes the cost of airfare and transportation to and from the airport. Alternatively, you may deduct the costs of traveling by car, rail, bus, ferry or other means. In addition, you can deduct the cost of your lodging and 50% of your meals attributable to business travel.
Conversely, if the trip is really a vacation in disguise, you cannot deduct any of your travel expenses. To claim a deduction, you must show that you spent more time on business than pleasure. Thus, the number of business vs. personal days is critical from a tax perspective.
Tax advantage: The days going and coming back are treated as business days. This can make your case clear-cut.
Example: Mr. Smith leaves for a business trip on Monday. He spends the next three days—Tuesday, Wednesday and Thursday—in meetings before wrapping up a big deal. Then, he relaxes on the golf course on Friday and stays over the weekend for sightseeing. On Monday, Smith flies back home, concluding his eight-day trip.
Thus, Smith has spent a total of five days on business including three days in meetings and two days traveling. In contrast, he spent only three days on personal pursuits. Because he spent five business days vs. three personal days, he qualifies for travel deductions.
Of course, Smith cannot deduct any expenses attributable to golfing or sightseeing. These are purely personal expenses. However, if he entertains a client on the golf course the day following or preceding a “substantial business discussion,” the cost is deductible as business entertainment under the usual tax rules.
What about your spouse? Although you cannot directly deduct expenses attributable to your spouse, you may write off the cost of what you would have spent to travel alone, even if that is more than half the amount you pay for the two of you.
Let’s go back to our previous example. If it would have cost Mr. Smith $200 in lodging each day for eight days traveling alone, but he incurred charges of $300 per day for lodging that included his wife, he can still deduct $200 per day, for a total of $1,000 for five business days.
Detailed recordkeeping in this area is essential. Make sure you have all the travel records required to back up your claims if the IRS ever challenges the deductions.