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Turning Your Vacation into a Tax Deduction

Learn how your personal vacation can be turned into a legal deduction.Couple walking near Lake

If you own your own business and decide you want to take a two-week road trip across America, you can legally deduct almost every cent you spend on your vacation. Here's how you do it.

1. Set up business appointments prior to your trip.
Many folks think they can go on vacation and just dole out business cards and then the trip is considered deductible. However, they are wrong.

The IRS requires you to have at minimum one business appointment prior to your departure in order to establish a legitimate "business purpose." So if you make appointments prior to leaving you’ll be able to deduct the expenses of the trip.

It’s strongly recommended that make legitimate meetings that are truly relevant to your business. If you do not already have contacts at your destination, you could make new business contacts in the area you are traveling to. For example if your company is building a new website, you could send out an RFP looking for vendors and then meet with those who respond.

A vibrant Linkedin network can be incredibly beneficial when it comes to finding to people to meet with that could help your business in a place you wish to vacation.

It’s super important you keep documents of your planning and expenses on your trip.

2. Sight-seeing while on business vs. doing business while on vacation
If you want to be able to deduct your business expenses for the trip, business must be the primary purpose of your trip. According to the IRS, travel expenses are 100% deductible if your trip is business related and it’s consider to be travel that’s away from your regular place of business as well as longer than a typical day of work in which you’ll need to sleep away from from home to conduct your work.

You don't have to live far away to consider an overnight stay as business travel. It’s just important that you have good justification even if it’s 4 miles from your home. For example, if there is a conference for your industry that’s being held in a hotel in your city. Staying there allows you to get there early and stay late to connect with new contacts and attend late night events without having to drive home.

3. Keep diligent daily expense records.
Each day you’re traveling for business, you’re allowed to deduct up to 100% of lodging, tips and ground transportation. For food, you’re allowed to deduct 50% of your food expenses.

Regarding receipts, the IRS doesn't need a receipt for travel expenses seventy-five dollars or under with the exception of lodging. However, it’s a great best practice to document these items in an expense journal. You can keep track of these expenses there in your smartphone using an app like Evernote. A robust tax journal is immensely helpful if you’re ever audited. You should keep track of details such as amount, date, place and business purpose for the expense.

Again, you need all receipts for lodging even if it’s $6.

Deductible expenses are not just food, lodging and transportation. You can also deduct laundry, shoe shines, manicures, and dry-cleaning costs for clothes you wore on the trip. Your dry cleaning bill will likely come right before or right after your trip and the cost is 100% deductible. You’ll want to keep the receipt and make sure the dry cleaning happens within a couple of days of the trip.

4. Take four-day weekends.
If you do business on a Friday and on the following Monday as well, you can deduct the expenses over the weekend even though you were not technically conducting business over the weekend. However, if you do business on a Tuesday and then again on Friday, you can’t deduct expenses for Wednesday and Thursday.

5. Make sure the majority of your days are business days.
To deduct transportation expenses, business must the primary purpose of the trip and that is defined by most of the days of your stay are qualified business days. So if you go to Florida and only one of those days you do business, then you can only count expenses for that day. But if more than 50% of the days are business, you can deduct the transportation costs.

Granted, sometimes it’s best for your health and mental well-being to just get away from work entirely so don’t feel like you have to do business on your vacation for the sake of being frugal. Make sure you have ample time to relax and rejuvenate.

Do you have the support you need to manage your small business bookkeeping? Contact us to schedule an appointment to speak with a local small business advisor.

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