It is never a good idea to write off a family vacation as a business expense. However, if you meet with clients or search for employment while you’re out of town, it is perfectly legal to deduct part or all of the cost of your trip. Nevertheless, before you use vacations as tax deductions, you need to know how to do it properly.
Travel-Related Tax Deductions: What You Need to Know
Understanding what you can and cannot deduct on your taxes can be quite confusing, especially when it comes to vacations. However, it is actually quite simple if you are aware of the following rules regarding travel-related tax deductions. If you follow these rules, you will have no problems at tax time. Understanding what you can and cannot deduct on your taxes can be quite confusing, especially when it comes to vacations. However, it is actually quite simple if you are aware of the following rules regarding travel-related tax deductions. If you follow these rules, you will have no problems when you file taxes.
• The cost of getting there: If your trip is within the U.S. and is mainly business-related, you can deduct the full cost of your travel expenses. However, if your trip is international, it must be at least 75 percent business-related to write off the entire cost of your plane ticket. Otherwise, you can only deduct a percentage of the cost.
• Recreational activities: Of course, you may want to spend a few extra days of your trip relaxing and having fun. This is perfectly OK as long as the main reason for your vacation is business, and you do not deduct any recreational expenses.
• Cruises: For a cruise to be tax-deductible, it must be mainly business-related, and the ship you sail on must be registered in the U.S. Additionally, the ship cannot dock in any foreign ports, and you can only deduct up to $2,000 per year no matter how many cruises you take.
• Meals and other costs: While you’re on a business-related vacation, you can deduct half of the food expenses for you and your associates. Furthermore, you may be able to deduct other costs like taxi fares, tips for rendered services, Internet access fees, business-related telephone calls and conference or seminar fees.
• Keep documentation: This rule is very important. You must keep documentation of everything you spend money on, from travel and hotel costs to meals and Internet fees. This documentation can include receipts, agendas and itineraries. In this way, if you are audited by the Internal Revenue Service, you will be prepared.
• Family: You can deduct expenses for your family or friends only if they are involved with your business in some way. You may be able to circumvent this requirement by sharing one taxi or staying in one hotel room.
• Extravagances: You cannot deduct extravagant expenses that you incur during a trip. Extravagance may include such things as limousine service, a luxury hotel room or a gourmet dinner. You can only deduct moderate expenses.
Searching for Employment While Traveling
If the main purpose of your vacation is to search for employment, you may be able to deduct your travel costs, meals and lodging. This is true even if you are not hired for the job you apply for. However, you must search for a job in your line of work, and you cannot have been unemployed for a lengthy period of time.
If you are looking for an affordable vacation, take advantage of business-related tax deductions. Having a little fun on your trip is perfectly acceptable if you just put in some work.
Jayson Mullin is a tax expert at the tax resolution company Top Tax Defenders. They offer tax audit representation during IRS audits.