Business travel is inevitable. These tips can turn those inevitabilities into tax deductions (and in some cases, weekend and exotic location getaways).
Check out https://www.bennettfinancials.com for more information.
Business travel; those two words evoke emotional responses ranging from dread to exhilaration. But as a business owner, it’s an inevitability. And the great news is that most of the expenses incurred are tax deductible and add right back into the bottom line.
It’s common knowledge that travel directly related to business, such as attending conferences, traveling to acquire new business or investment property, board meetings, etc. are tax deductible.
But pretty much any trip can be turned into a deductible business trip. Including exotic vacations and weekends.ok w that is possible.
First, how does the IRS define business travel?
There are four main rules that apply in order to claim tax deductions for business travel:
1. A valid reason why the trip will make the business money (now or in the future)
2. An overnight stay
3. Proof that it makes sense to have to travel for a business purpose
4. Use the majority of days to conduct or make plans for the business.
Be sure to keep good records, too. Receipts are a MUST when seeking tax deductions for business travel.
Second, what kinds of expenses can be tax deductions?
1. Life expenses. During travel, deduct the cost of sustaining life; these expenses include lodging and meals. These are all eligible tax deductions on business days but not on personal days.
2. Business-related expenses. Some expenses are always business expenses, whether incurred at home or away. Thus, if there are business expenses for printing, shipping, or communication, they are considered tax deductions, even on personal days.
It’s important to note that eligible deductions are for business days only, not personal days. And in order to make tax deductions, the majority of your days on the trip need to be business days.
Third, how to determine a legal ‘business day’
To count a trip day as a business day, it must meet one of the categories in the following list:
1. Work over four hours. Spend more than half of normal business hours in the pursuit of business. Since a normal business workday in the United States is eight hours, then it must be at or more than four hours.
2. Presence-required day. If an owner must be at a particular place for a specific and bona fide business purpose, this counts as a business day. That “someone” could be any business associate, whether an employer, a partner, a client, or a customer.
3. Travel day. Business travel days are those spent traveling in a reasonably direct route to the business destination.
Now here comes the good stuff:
If a weekend, holiday, or other necessary standby day falls in between two business workdays, they count as business days. Especially if it would not be practical to return home on those days because of the time required or the expense involved.
So in other words, if both Friday and Monday are designated work days and fit the eligible criteria above, then the entire weekend converts into business standby days. That equates to an extra two days’ worth of tax deductions for living expenses for a little over four hours of work. That’s what is called wrapping a weekend, and it’s a really good deal.
This also applies for any day work was attempted, but outside circumstances prevented it from happening, or if travel occurs a day or two earlier or later because the costs would yield significant savings.
You can travel to exotic locations using the 7-day travel rule
The 7-day travel rule allows a 100 percent deduction of transportation costs to a business destination even if only one day was spent working and the rest of the time on the beach.
How is this possible?
Well, under the general rule, when traveling outside the United States away from home in pursuit of business, deductions only apply to the expenses allocable to the pursuit of business. That’s the general rule. But there are two exceptions.
1. Under Section 274(c)(2)(A), the general rule does not apply to any travel outside the United States when such travel does not exceed one week.
2. Under Section 274(c)(2)(B), the general rule does not apply to expenses of travel outside the United States when that portion of time not attributable to the pursuit of the taxpayer’s trade or business is less than 25 percent of the total time on such travel.
So what does that mean?
It means the seven-day travel rule can be used to create a short vacation at a nice resort or exotic location without fear of losing the business expense deductions for transportation. It’s simple. It’s easy. And it’s the law.
For clarification, one-week means seven consecutive days.
Use ordinary-and-necessary one-on-one business meetings with an outside-the-U.S. individual or company to create the seven-day transportation deduction without worrying about the rules that apply to conventions, meetings, and seminars.
In identifying the seven consecutive days:
1. Don’t consider the day in which travel outside the United States away from home begins.
2. Do consider the day in which such travel ends.
Also, this tax benefiting rule applies to travel outside the United States only. It does not apply to travel within the United States.
But for purposes of this seven-day travel rule, the tax rules define the United States as consisting of only the 50 states and the District of Columbia.
In conclusion
Business travel is inevitable. These tips can turn those inevitabilities into tax deductions (and in some cases, weekend and exotic location getaways).
Check out https://www.bennettfinancials.com for more information. Also, check out this Business Mile Deduction and Travel Expense Deduction quick-reference guides for even more tips!
