With vaccination being ramped up all over the country to address the Covid-19 pandemic, there is a semblance of society getting back to a new “normal”.
With that being said, how would you like to legally deduct every dime you spend on a well-deserved vacation this year? This financial guide offers strategies that help you do just that.
If a Small Business Owner decides to take a two-week trip around the US, you can and you can also legally deduct every dime on that “vacation.” Here’s how.
1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible. Wrong.
You must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. Small Business Owners, Keep this in mind before you leave for your trip.
Set up appointments with business colleagues in the various cities that you plan to visit.
Let’s say you are a manufacturer looking to expand your business and distribute more of your product. One possible way to establish business contacts–if you don’t already have them–is to place advertisements looking for distributors in newspapers in each location you plan to visit. You can then interview those who respond when you get to the business destination.
2. Make Sure your Trip is All “Business Travel.”
In order to deduct all of your on-the-road business expenses, you must be traveling on business.
The IRS states that travel expenses are 100 percent deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day’s work and you need to sleep or rest to meet the demands of your work while away from home.
It the small business owner wanted to go to a regional meeting in Atlanta, Georgia which is only a one-hour drive from his home all that would be needed is for him to sleep in the hotel where the meeting was being held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.
Remember that you don’t need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.
3. Make sure that you deduct all of your on-the-road -expenses for each day you’re away.
For every day you are on business travel, you can deduct 100 percent of lodging, tips, car rentals, and 50 percent of your food.
The IRS doesn’t require receipts for travel expense under $75 per expense–except for lodging.
So if the business owner pays $6 for drinks on the plane, $6.95 for breakfast, $12.00 for lunch, $50 for dinner, he does not need receipts for anything since each item was under $75.
However, the small business owner would need to document these items in a diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation shall consist of amount, date, and place along with the business reason for the expense.
You’ll need receipts for all paid lodging.
Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip.
Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.
4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.
If the small business owner have business appointments in Atlanta, Georgia on Friday and one on the following Monday, even though there’s no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.
5. Make the majority of your trip days business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days of the trip must be for business activities, otherwise, you cannot make any transportation deductions.
Let’s say the small business owner travelled to and spend six days in Atlanta, Georgia. He arrives early in Atlanta on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight out of Atlanta after playing a complete round of golf. The entire trip can be classified as a business trip.
Thursday is a business day since it includes traveling – even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.
Since the small business owner accrued six business days, he could spend another five days having fun and still deduct all his transportation to Atlanta, Georgia. The reason is that the majority of the days were business days (six out of eleven).
However, he would only be able to deduct six days’ worth of lodging, dry cleaning, shoe shines, and tips. The important point is that the small business owner would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.
With proper planning, you can deduct most of your vacations if you combine them with business. Bon Voyage!
User | 8/03/2021