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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.
While you can deduct seminar and convention
costs so long as they relate to your profession or business, the IRS
doesn't allow you to deduct the expenses for attending an investment or
financial planning seminar in a resort area -- or, say, a cruise ship.
Likewise, you can't deduct the costs of attending an annual meeting of
stockholders if you're a shareholder. These the IRS considers personal
business.
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. Let’s have a look at
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.
I 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).
Let’s say you took a trip from New York to
London primarily for business purposes. You were away from home July 20
through July 29 and spent three days vacationing and seven days conducting
business (including two travel days). Suppose your airfare was $500 and
your meals and lodging amounted to $75 per day. You could deduct 70% of
your transportation expenses (seven out of 10 days) and $75 per day for
seven business days, as you were away from home for more than seven days
and more than 25% (three out of 10 days) of your time was devoted to
business. (Remember that only 50% of your meals would be deductible.)
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.
Foreign conventions
Further restrictions are imposed on foreign
conventions. No deduction will be allowed for expenses attributable to a
foreign convention unless it is “reasonable for the convention to be
held outside North America.” In other words, you can’t deduct the trip
if you can’t show it had to be over there rather than over here. Note
here that we’re only talking about conventions. These rules don’t
apply to other foreign business meetings. Three factors are considered in
determining the reasonableness of the convention location:
- The purpose of the
meeting and the activities taking place at the meeting;
- The purpose and
activities of the sponsoring organization or group;
- The residence of the
active members of the group and where prior or future meetings will be
held.
While there is no limit on
the number of foreign conventions/vacations you can attend and deduct on
your taxes, the rules change if you try to do it on cruise ships. Uncle
Sam has a hard time understanding how serious conventions are when held
aboard luxury cruise liners, unless:
Even then, the maximum
deduction is $2,000 per year 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.
Remember that the key to deducting your vacation
as a business expense is prior planning. Make sure that you can
substantiate your business purpose for the trip and your expenses.
Properly planned trips that combine business with pleasure will allow you
to deduct the cost -- or at least a portion of your cost -- for nearly
everything you do.
I have found that 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 30% bracket, a $10,000 business and vacation trip would be
subsidized by the IRS to the tune of $3,000!
2003 small business aide
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