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How to Write Off Your Vacation Expenses

write off your vacation expensesWriting off your personal vacation expenses is one of those “tricks” that most business owners eventually inquire about. Often, it’s soon after a friend tells them they took a vacation to an exotic location and “wrote it all off”.

It seems too good to be true. But is it?

Here’s the low down on turning your vacation expenses into business tax deductions.

First Things First

If you follow the rules, it is true that you can turn most travel into valid business tax deductions.

The trick is to add personal days to an already valid business trip, NOT add some token business activities to a personal trip.

Business must be the primary purpose of your trip.

Okay: Attending a three day conference in Hawaii, staying for a week, and taking your spouse and kids.

Not Okay: Going to Hawaii, staying for a week, taking your spouse and kids, and spending half of your time handing out business cards and working on your laptop.

See the difference?

How to Write Off Your Vacation Expenses

With some smart planning, you can take tax deductions for vacation expenses that would ordinarily not be deductible.

For example, if you attend a conference or visit your biggest customer another state, your airfare, rental car, and hotel are already valid business deductions. If you add on a few days of personal time to the trip, your travel expenses are still deductible as long as more than 50% of your work days are business related.

That means if the conference location is in a city you already wanted to visit (e.g. Las Vegas), you just got to write off part of your otherwise non-deductible vacation expenses.

Examples of deductible trips:

  • Two working days, one personal day (66% deductible as business)
  • Three working days, two personal days (60% business)
  • Fly out on a Thursday, work Friday and Monday, and fly home Tuesday (100% business)
  • Fly out on a Sunday, work three out of 5 days that week, and fly back on a Saturday (60% business)

Take Advantage of “Free” Days

Did you notice that in the third example, you work on a Friday and Monday, but the whole trip is considered business?

How is that?

Weekends, holidays, and other necessary standby days are counted as business days if they fall between business days. The two travel days also don’t count against you because travel days don’t count in the work-days formula.

While it’s not the most practical example (there aren’t many conferences on just Fridays and Mondays), there are situations in which it might work for you.

In the last example, you get to write off 60% of a week-long trip by taking advantage of two travel days and working three out of the five weekdays.

A week-long trip will pass the “primarily business” test as long as you have three business days once you’re there. Since the two travel days don’t count, only the two personal days count against you.

Note: The IRS does check the nature of conventions, seminars, etc. carefully to make sure they are not vacations in disguise, so make sure it’s something legitimate that you have a valid business reason for attending.

Deducting Travel Costs for Family Members

You may be able to deduct travel and vacation expenses for your family members, if they are an employee AND there is a business reason for them to be traveling.

So that means that no, you cannot just take your spouse along to your conference, say you “discussed business (wink, wink)” and write it off. It won’t fly. However, if your spouse actually works in your business, and there is a business reason for them to come along, it should pass muster with the IRS.

If your airfare and meals, rental car, and hotel room are treated as business deductions, a spouse or kids that tag along on a car ride (think: rental car) or who can fly for free with your frequent flier miles may only have their meals left as non-deductible vacation expenses!

Pushing the Envelope

There are situations in which more “aggressive” deductions may be available. Many clever business owners can think of other ways to use business travel in other ways to build their business.

Some examples to think about: attend a networking event with other business owners at a golf or ski resort, investigate a new product or market, visit others in your industry outside of your market and meet with them to learn more about their business (preferably after developing a mentoring type relationship).

Final Notes

As with anything tax related, make sure to keep good records.

  • Document the business purpose of your trip
  • Keep a log of what you did on the trip
  • Keep the documentation from the conference showing the classes, etc. you attended

The legitimacy of your tax deductions are based on the facts and circumstances surrounding your situation. Good record keeping is vital to sustaining your tax deductions in an audit.

If you plan carefully and don’t get greedy, you can find ways to create tax deductions for otherwise personal vacation expenses.

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