With proper planning, youcan deduct most of yourvacation expenses. Thetrick is to combine businesswith pleasure. By incorporating thefollowing tips, you can turn your nextbusiness trip into a vacationâ€”or yournext vacation into a business trip:
• Schedule appointments before youleave. Most people wrongly believe thatby giving out their business card during atrip, the trip becomes tax-deductible. Thetruth is you must have at least one ormore business appointments scheduledbefore you leave for your trip for it to betax-deductible. In fact, the IRS requiresyou to have a business purpose in placebefore you arrive at your destination.: Document your appointmentsin a tax diary, keeping copiesof all correspondence when possible.
• Understand the fine art of businesstravel. By definition, you are onbusiness travel whenever you sleepovernight in a strange bed. And you don'tneed to live far away from your temporarysleeping quarters to be on businesstravel. If you live only a few miles awaybut have a good reason for spending thenight in a hotel (eg, to avoid possibleautomobile or traffic problems), your tripwill still be considered business travel.
• Deduct on-the-road expenses foreach day you're away. For every day thatyou're on business travel, you can deduct100% of your lodging, tips, shoeshines,laundry and dry cleaning, and car rentals,along with 50% of your food. Accordingto the IRS, no receipts are required for anytravel expenses under $75â€”the onlyexception is for lodging. You do, however,need to document all these items in yourtax diary. A good tax diary is essential toaudit-proof your records. Keepall receipts for paid lodging.
Not only are your on-the-roadexpenses deductible for your trip, but youmay also deduct the bill from your localdry cleaner if the clothes were soiled onthe trip. So, your first dry cleaning billafter you return home is fully deductible.Make sure that you receive a receipt fromthe dry cleaner. In addition, have yourclothing dry cleaned within a day or twoof your return. Don't wait 2 weeks tohave your clothing dry cleaned.
• Sandwich weekends between businessdays. The IRS notes that if you havea business meeting on Friday and anotherone on Monday, you may deduct all theon-the-road expenses for Saturday andSunday. So, if you're scheduled to give apresentation in downtown Miami onFriday and then attend meetings uptownthe following Monday, you may actuallydeduct all the on-the-road expenses youincur on Saturday and Sunday.
• Make the majority of your daysbusiness days. The IRS says that you candeduct your transportation, in addition toon-the-road expenses, if the primary purposeof your trip is business. In otherwords, not only do you have to scheduleappointments in advance, you must alsomake the majority of your days businessdays; otherwise, you can't deduct anytransportation expenses. This is an all-or-nothingproposition.
Let's say you spend 6 days in sunnySan Diego, Calif. You arrive early Thursdaymorning, attend a medical seminaron Friday, and give a presentation Mondayafternoon. After playing a round ofrelaxing golf Tuesday evening, you catcha late-night flight home. So, how manydays of your San Diego trip will the IRSconsider business days? TheIRS will consider every day you spent inSan Diego a business day.
Thursday is a business day because itis a travel day. Even if upon arrival youdecided to spend the whole day soakingup rays on the beach, Thursday wouldstill be considered a business day. Fridayis a business day because you attended amedical seminar. And, of course, Mondayis a business day because you gave apresentation. Saturday and Sunday areboth business days since they were sandwichedbetween business days. Tuesdayis a travel day, which automaticallymakes it a business day.
In fact, since you had 6 business days,you could spend another 5 days in SanDiego having fun and still deduct yourtransportation costs. That's because themajority of your days (ie, 6 of 11) wouldstill be business days. In this case, however,you would only be able to deduct 6days worth of lodging, dry cleaning, laundry,shoeshines, and tips. As you can see,turning your next business trip into avacation (or vice versa) is easy to do.
Sandy Botkin, a former IRS taxattorney and trainer of IRS attorneys,is CEO of the Tax ReductionInstitute in Maryland and the authorof Lower Your Taxesâ€”BigTime! (McGraw-Hill; 2003). Hetravels nationwide lecturing on tax-planning andaudit-proofing techniques for small and home-basedbusinesses. He welcomes questions or comments at301-972-3600 or www.taxreductioninstitute.com.