If you go on a business trip and add a few extra personal vacation days, the law allows you to deduct some of your expenses. How much of those expenses are deductible?
First, let's cover pure transportation expenses. Examples include travel to and from your departing airport, the airfare itself, baggage fees and tips, and cab fare to and from the destination airport. The IRS determined that these expenses are 100% deductible if the primary reason for the trip is business rather than pleasure. However, if vacation is the primary reason for the trip, none of your transportation expenses are deductible.
The IRS does not specify how to determine if the primary reason for travel is business. A major contributing factor is the number of days spent on business versus personal. Weekends and holidays can be classified as business days if they fall between days devoted to business and it would be impractical to return home.
Next, your out-of-pocket expenses for business days are fully deductible. These expenses would include lodging, hotel tips, meals (subject to the 50% limitation rules), seminar and convention fees, and cab fares.
A great way to maximize deductions for the personal portion of a trip is with a Saturday night stayover that reduces the overall cost of the trip. If you can show staying the extra day or two costs less (or no more) than coming back home immediately after the business meeting is over, the IRS allows you to deduct your additional meal and lodging expenses for the extra day(s). This exception is still subject to the primary business rule, as discussed earlier.
Taxpayers must be able to properly substantiate the reasons for taking the business trip whenever the business days exceed the personal days. Proper documentation includes logs/minutes of client meetings, programs/brochures from seminars/conventions attended, and names of people who attend business lunches/dinners, just to name a few.
Please contact us if you would like more information or guidance on the rules of business versus personal expenses.
