Business owners who travel out of town on business sometimes like to extend their trips and take a little time to relax and see the sights. When a trip is partly for business and partly for pleasure, various expenses may still be deductible.
A self-employed individual whose trip is primarily for business may deduct the full cost of the travel itself (such as airfare or train fare) even though some of the trip is devoted to personal activities.1 Additionally, various other expenses allocable to business, such as lodging and 50% of meal costs incurred on the business days, are deductible.
There needs to be a legitimate business purpose for each person taking the trip for there to be a write-off. For example, if your spouse or kids travel with you, the cost of their travel may not be deductible if they are not involved in the business.
In addition, you may have to allocate a portion of the trip when both business and personal activities are intertwined.How do you maximize your deductions when traveling? Easy! Turn more days into business days. Consider getting your spouse and kids involved and find ways to conduct business-related matters. Ultimately, you’ll have to demonstrate how the activities performed helped your business.
If a trip is primarily for personal reasons, the entire cost of the travel is a nondeductible personal expense. However, expenses incurred while at the destination that are directly related to the taxpayer’s business may be deducted.
For example, if you travel to Disney with your family and set up a couple of lunch meetings with clients in the area, the cost of the meals could be deductible as a business expense. The trip to Disney would be non-deductible.
The deductibility rules for combined business/pleasure trips outside of the U.S. are a little more complicated in some respects. Even if the primary purpose of the trip is business, the cost of the travel itself generally has to be allocated, and only the business portion is deductible. However, no allocation has to be made — and the full travel cost is deductible — if:
- The trip lasts for no more than seven consecutive days (excluding the day of departure but including the day of return); or
- Personal days total less than 25% of the total days spent on the trip (including both the day of departure and the day of return); or
- The taxpayer can establish that the opportunity to take a personal vacation was not a major consideration for the trip.
- For these purposes, business days include days when business is conducted for only part of the day, days spent traveling to and from a business destination, and weekend days or holidays that fall between two business days.
As this brief overview suggests, with smart planning, self-employed business owners can maximize their write-offs for combined business/pleasure travel.
Contact us today to discuss how we can help you maximize your deductions and limit your tax liability with proper planning.
1Under The Tax Cuts and Jobs Act of 2017, employees may no longer deduct unreimbursed employee business expenses as a miscellaneous deduction, effective with the 2018 tax year.