One of the benefits of being a business owner is the ability to take tax deductions for business-related expenses. As you plan for your next vacation, make sure you take advantage of all the tax write-offs that you are legally entitled to, and that includes the wonderful opportunity to save on taxes by turning your vacation into a tax deduction.
So how exactly do you turn your vacation into a legitimate tax deduction? The easiest way to demonstrate this is to go over a specific example of just how this can be done.
As an example, let’s take Tim, who owns his own business. Tim decided he wanted to take a two-week trip around the United States. So he did—and was able to legally deduct every dime that he spent on his “vacation.” Here’s how he did it.
How to make your next vacation a tax write-off
1. Make all your business appointments before you leave for your trip
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.
Wrong.
You must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. Keeping this in mind, before Tim left for his trip he set up appointments with business colleagues in the various cities that he planned to visit.
Let’s say Tim is a manufacturer of green office products looking to expand his business and distribute more products. One possible way to establish business contacts—if he doesn’t already have them—is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.
Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.
Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence, along with noting in his diary what appointments he will have.
2. Make sure your trip is all “business travel”
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100% deductible as long as your trip is business related, you are traveling away from your regular place of business longer than an ordinary day’s work, and you need to sleep or rest to meet the demands of your work while away from home.
Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.
Tip: Remember: You don’t need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.
3. Deduct all on-the-road expenses for each day you’re away
For every day you are on business travel, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tim spends three days meeting with potential distributors. If he spends Rs.4093 a day for food, he can deduct 50% of this amount, or Rs.2,046 a day.
Example: If Tim pays Rs.491 for drinks on the plane, Rs.569 for breakfast, Rs.982 for lunch, and Rs.4093 for dinner, he does not need receipts for anything since each item was under Rs.6140.
Tip: The IRS doesn’t require receipts for travel expense under Rs. 6140 per expense—except for lodging.
