The IRS says you can deduct
expenses for taking a business trip or business convention. And there’s no reason the
trip shouldn’t coincide with your vacation.
Pack a laptop with your bathing suit on your next vacation.
There is no law prohibiting you from combining a business trip
with a vacation. And if you do mix and match, don’t forget to keep your receipts.
The Internal Revenue Service concedes that you’re entitled
to deduct expenses for taking a business trip or attending a business convention. While
such trips must benefit or advance your business to qualify as a tax deduction,
there’s no reason why the trip or convention couldn’t coincide with your
vacation. Why do you think that most large conventions are held in cities like New York,
Palm Springs and Miami?
What’s involved
Convention and business travel expenses are deductible to both
employees and the self-employed. Such expenses would include convention costs, hotels,
meals and entertainment, and travel expenses to and from the convention. If a business
purpose can be established, the expenses of your spouse may also be deductible. The
business conventions or seminars must specifically relate to your business or profession.
This rule could be called the “resort investment seminar” rule.
The IRS specifically says you can’t deduct the expenses for
attending an investment or financial planning seminar in a resort area.
Rules vary on domestic, foreign travel
The deductibility rules differ depending on whether the trip is
within or outside the United States, and whether it’s a foreign convention or a
cruise convention. We will examine each:
If your business-vacation trip is within the United States: Your
transportation expenses will be deductible only if the trip is primarily for business. If
the trip is primarily for pleasure, no transportation expenses can be deducted. This means
that you have to establish a primary business motive for making the trip: for example,
you’re going to attend a convention in that city, or visit a client or potential
client who is based there.
We would recommend that if you’re going to visit a client,
you should write to this person and receive in return a letter confirming the planned
visit to discuss business matters. That letter validates the business purpose of your
trip.
Factoring your business time
The amount of time that you spend on business will be a factor
in answering the question of whether the trip was mostly for fun or work. For example, if
you spend five days conducting business and three days sightseeing and seeing shows, the
trip will be considered primarily for business and all of your transportation will be
deductible.
Alternatively, if you conducted business for two days and
enjoyed the sites for the remaining six days, the trip would be considered primarily
personal and no transportation expenses would be allowed. It’s important to recognize
that travel days count as business days in the “primary” computation.
Even if the trip is mostly personal, any expenses you incur that
are mostly business-related -- meals, lodging or incidental expenses, for example -- can
be deducted.
If the trip is outside the United States, as defined by the IRS
to include Canada, Mexico, the Pacific Islands and certain Caribbean countries, special
allocation rules apply. If you were out of the country for seven days or less, or if less
than 25% of your trip was spent enjoying the scenery, you don’t have to follow the
special allocation rules. Furthermore, no allocation is required if you had no substantial
control over the trip arrangements and if the desire for a vacation was not a major factor
in taking the trip.
Alternatively, if the trip was primarily for pleasure, none of
the transportation expenses will be deductible. In all other cases, all travel expenses
must be allocated between business and personal expenses (with travel days counting as
business days).
If your trip is subject to the allocation rules, there is a
planning strategy to maximize your tax deduction. When booking your flight, if you can,
arrange for a stopover within the United States at the point closest to your destination.
That way, the portion of the trip between your home and the stopover point will be fully
deductible. You will then only have to allocate the cost of the remainder of the trip.Even
then, the maximum deduction is $2,000 for each taxpayer and you must attach two written
statements to your return. The first statement, signed by you, must include information as
to the number of days that were devoted to scheduled business activities. The other,
signed by a representative of the sponsoring organization, must include a schedule of the
business activities each day, and the number of hours you were in attendance.
Perhaps the easiest way to maintain a record to prove you really
did work on that trip to Tahiti is to keep a diary or account book of such expenses. After
all, if you’re in the 31% bracket, a $10,000 business and vacation trip would be
subsidized by the IRS to the tune of $3,100!
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