It’s no secret that a big perk of running your own small business is the opportunity to take advantage of tax write-offs you simply can’t get when you’re strictly W-2.
But when it comes to turning your next vacation into a tax deduction, there are plenty of considerations to take into account to keep you in compliance.
Here’s a simple guide for expensing your vacation without getting a letter from the IRS!
The primary purpose of your trip MUST be for business
This is a biggie, and where many business owners misunderstand how business travel deductions work.
In order to deduct your travel expenses, you must have a legitimate business reason for traveling and the majority of your trip must be spent engaged in real business-related activities.
You can’t just tack a sales meeting onto your week at Disney World and call it a business trip. You need to plan a business trip and then work backwards to squeeze in leisure and fun.
That said, there are many creative ways to add legitimate business activities to your trip, from taking a class to researching a new territory, networking, meeting with a client for lunch, visiting a potential new supplier and so on. Your CPA can help you determine which activities do/don’t qualify depending on the nature of your company.
Travel expenses you deduct must be ordinary and necessary
The IRS only allows deductions for expenses that are reasonable and typical for someone in your line of work.
Expenses such as lodging, airfare, local ground transportation and a portion of meals/snacks will almost always be allowed, but any expense that is not directly related to a business activity will not.
It’s very important to keep meticulous records of everything you do on vacation, to keep your business and leisure expenses separate. If you plan on taking deductions for travel expenses that could be construed as non-business related, it’s a good idea to take notes with a short explanation for how the expense was necessary.
Your travel companion’s expenses are only deductible if you hire them
While certain expenses may still be fully deductible, such as sharing a hotel room and rental car with your spouse, additional expenses you incur solely as a result of bringing your children or other travel companions cannot be written off.
The one exception is if your travel companion performs real work for the business and is paid in cash for their services – but do bear in mind that the IRS is very strict on the rules surrounding family members working for your business. This must be real work that you would otherwise need to hire someone else to do or perform yourself.
Other considerations
Note that the IRS can be particularly picky about international travel, cruises and trips centered around a conference or convention. This doesn’t mean expenses from these types of business trips can never be written off, just that you’ll want to be extra cautious to stay in compliance to avoid being audited.
When in doubt, ask At Accountability Services, our tax team are experts in helping business owners write off their vacation the right way. Call today to get the guidance you need to maximize travel deductions without getting in trouble with the IRS.
