The impact of the pandemic is easing, and business travel is on the rise. Making client calls, visiting vendors, and going to conferences are all scheduled on business calendars, but what about vacations? Has COVID-19 made you homebound for longer than you would like? Why not combine the two! If you follow precise rules outlined by the IRS, you can have Uncle Sam help pay for some of your fun. Remember, you are not obliged to pay “More Than Your Fair Share.”
An important caveat, under the Tax Cuts and Jobs Act, states that employees can no longer deduct unreimbursed business travel expenses. Business owners and self-employed persons are generally eligible to deduct business travel expenses if they meet the tests outlined by the IRS.
What steps must I take to make some write-offs available?
First, to legally deduct your vacation, the trip’s primary purpose must be business. Despite the prevalence of remote work, taking your laptop to the beach in Hawaii for a family vacation doesn’t meet the standards for the IRS. To establish the trip as primarily for business, you should make appointments and book business events before you leave for your trip. Handing your business card out at the pool bar will not pass muster.
You also must be traveling to a location outside of where you do your day-to-day business, and it should include an overnight stay for business purposes, not convenience. The bottom line is that, if your business days exceed your personal days, you should be able to claim that business was the primary reason for a domestic trip and deduct your transportation costs.
What business expenses are tax-deductible?
Many aspects of the trip are tax-deductible, including 100% of transportation by plane, train, bus, rental car, and more. Additionally, you can write off 100% of lodging on the days you work. Scheduling your “workdays” is essential in maximizing your tax deductions. A workday is any day that the majority of hours are spent working. If you are in business meetings from 9 am until 2 pm, and you play nine holes in the afternoon – it’s still a workday.
Thanks to current coronavirus relief, you can also deduct 100% of business meals through 2022, as long as the expenses aren’t extravagant under the circumstances
Once at the destination, your out-of-pocket expenses for business days are fully deductible. These expenses include lodging, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. However, costs for personal days aren’t deductible. Note, Beginning January 1, 2021, through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants if the business owner (or an employee of the company) is present when food or beverages are provided. The expenditure must also not be lavish under the circumstances.
According to the IRS, additional tax-deductible items include laundry, dry cleaners, and tips.
What about weekends?
If you can “sandwich” the weekend around business workdays, then the weekend lodging is considered a business expense. If you’ve done work on Thursday and Friday but enjoyed personal time on Saturday and Sunday, only two days of lodging are deductible. However, if you scheduled a business meeting on Monday, the cost of lodging over the weekend would be tax-deductible.
What about expenses for family members?
Remember, only expenses for yourself are deductible. You can’t deduct expenses for family members traveling with you, including your spouse or dependents, unless they’re employees of your business and traveling for a bona fide business purpose as described above. However, they can enjoy the use of shared spaces like the rental car or your hotel room.
Do I need to keep records?
Absolutely, you should keep excellent records. Be sure to retain the proof of the business nature of your trip. It would be best if you correctly substantiated all of the expenses you’re deducting. The IRS has thresholds for small expenditures that do not require a receipt, but I recommend you keep them all! If you get audited, the IRS will want to see records you claim were for business during travel. Good records are your best defense.
Turning a vacation into a tax deduction requires planning!
As you can see, there are many creative ways to turn your vacation into a tax deduction. All it takes is a little planning ahead. Before you leave for your trip this summer, be sure to apply some of these tips. Bon, voyage!
Need help?
Feel free to share these tips with family and friends. If you are considering a “business vacation,” consider getting in touch with a member of our team who can serve as your “tax travel agent.”