Can you Mix Business and Pleasure When Traveling?
Several small business owners ask if they can travel for personal reasons and deduct the costs as business expenses. If travel is entirely for personal, it cannot be deducted. Travel should be proven to be for business to deduct the costs as travel expenses when you prepare your business return.
Nevertheless, we are humans, and we like to have fun occasionally. Many of you feel it’s justified to deduct personal travel because you could be doing so after a hectic working period. Imagine someone like me, a tax pro? I have been busy preparing returns non-stop from the last week of January until now. It’s been several weeks of hard work, and I will definitely take a few days off after closing the tax season. In such cases, I feel like the intensity of my work has warranted such a vacation – which makes it sort of business-related because the trip is more for rebuilding my strength. Call it a single-family team-building vacation. However, on a more serious note, in the eyes of the IRS, I will still be taking a personal trip. Hence it cannot be deducted.
Nevertheless, in this article, I will help you understand that you have a chance of deducting some or all your travel expenses, even if it was initially for personal reasons. When it comes to business deductions, they must be ordinary and necessary. This means that the costs you incur on a business tab must add value to your business, such as attending a marketing workshop during your travel away from your tax home and buying lunch while at it.
What is your tax home?
To deduct travel expenses, you must have traveled away from your tax home to conduct business-related activities. That’s when you can deduct costs such as air tickets, uber fees, meals, etc. But what is your tax home?
Your tax home is the entire city or area where you carry out your main business activities. This means a place where your office could be located or where you conduct business. This applies regardless of where your family stays, meaning you could be working in an entirely different city from where your family lives, only visiting them after a week or two. Your home where your family lives, in this case, is not your tax home. The place you work is your tax home. As such, when you travel outside this city where your office or area of work or business is located, for business-related activities, you can deduct expenses. Below, we will look into how you can deduct these expenses when your initial idea was to take a personal trip. While at it, it is imperative to understand that tax deductions must be implemented legally. Anything outside the dictates of the tax code will land you in trouble with the IRS.
How to mix personal travel and business for tax purposes?
To benefit from this, you ought to understand expenses you can deduct from business travel. These include air, train, bus, or taxi fares to travel from your place of business to your destination. Fares to travel to and from the airport and in between meetings are deductible too. Lodging, meals, and expenses related to using your own car are included. However, they must be specifically for the trip. As such, it should help to record the reading on your odometer before leaving and doing so when you come back to calculate the mileage.
So, the big question is how to ensure that your travel goes down as a business activity and is deductible.
First, you should set it so that more than 60% of your activities on the travel are for business. This should be deliberately planned so that you benefit from deducting transport costs, some meals, and costs for attending other activities while on vacation.
To turn most of your activities into business, set up meetings with clients while on the trip. More so, target random new prospective clients, arrange meetings with them during the vacation (in person), and market your business or services to them. Buy lunch and eat with them. If you can also coincide your vacation with a business conference or workshop, that would be great. Attend that workshop during your vacation. This helps to deduct your lodging expenses.
Finally, when on vacation, we tend to get into many fun activities with our loved ones. This time, do it so that you can record videos of yourself that can be repurposed to market your business. Mention your business while recording the videos and have them edited to include your logo. Expenses for those activities can then go down as marketing expenses. They are necessary and can be deducted from business income.
In conclusion, you should be careful not to break the law when engaging in these activities. If it is too difficult and results in you manipulating events a lot, you could be treading dangerously. In this case, you need me to help you do this properly. Contact my office and book an appointment with me to understand how to make your travel expenses ordinary and necessary.
Frequently asked questions
- What is the purpose of travel tax?
A travel tax is levied by every government, such as the international arrival tax paid on air tickets. The purpose of such taxes is to find government activities such as the work of Homeland Security and other departments that work on airports and the roads. It is also to maintain public infrastructures such as roads and airports.
- Can travel tax be refunded?
Travel tax is not refunded. But you can write off travel tax as part of travel expenses when you take a business trip outside your tax home. Travel tax is charged as part of your train, plane, or bus ticket. It is similar to sales tax.
- How do I claim my travel tax refund?
You can only deduct travel expenses without claiming a refund. However, if your travel expenses reduce your taxable income such that you end up owing below zero in taxes, the IRS may refund any overpaid taxes. That is why it is important to itemize deductions and reduce your tax bill. However, it is unlikely that deductions will reduce your tax bill to below zero – only tax credits (which reduce your owed taxes, dollar for dollar, can do so).
