How would you like to legally deduct every dime you spend on vacation this year? This financial guide offers strategies that help you do just that.
Mark is the owner of a small business and he decided that he wanted to take a two-week trip around the US. So, he did–and was able to legally deduct every dime that he spent on his “vacation.” Here’s how he did it.
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. That’s not the case and that will not pass the muster test with the IRS. In-order to make the trip deductible, you must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. Keeping this in mind, before he left for his trip, Mark set up appointments with business colleagues in the various cities that he planned to visit.
In this instance Mark is a manufacturer of green office products looking to expand his business and distribute more product. One possible way to establish business contacts–if he doesn’t already have them–is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.
If Mark wanted to vacation in Hawaii for example and he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.
It is imperative for Mark to document the business purpose of his trip by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.
2. Make Sure your Trip is All “Business Travel.”
In order to deduct all of your on-the-road business expenses, the travel must be business related. 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.
Let’s say Mark wanted to go to a regional meeting in Las Vegas, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.
Contrary to popular belief, 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.
You are allowed for every day you are on business travel to deduct 100 percent of lodging, tips, car rentals, and 50 percent of your food. Mark spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50 percent of this amount, or $25 per day. The IRS doesn’t require receipts for travel expense under $75 per expense–except for lodging.
If Mark 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.
He would, however, need to document these items in your diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation shall consist of amount, date, place and business reason for the expense.
A receipt is however needed for all paid lodging. If Mark stays in the Bates Motel and spends $50 on lodging, will he need a receipt? The answer is yes as you 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, did you know that you can deduct all on-the-road expenses during the weekend.
Mark makes business appointments in Florida on Friday and one on the following Monday. Even though he has 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 in the trip must be for business activities, otherwise, you cannot make any transportation deductions.
If Mark spends six days in Las Vegas. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?
All of them. 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 Mark accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days of lodging costs, dry cleaning costs, shoe shines, and tips. The important point is that Mark would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.
With proper planning, Metro Accounting And Tax Services, CPA will show you how you can deduct most of your vacations if you combine them with business. Call the Office today, 470-240-5143 and we’ll show you how.
User | 6/11/2017