In this time of year, the summer holidays are in the minds of many people. If you are traveling on business, combining a business trip with a vacation to make up for a portion of the cost with a tax deduction may seem attractive. But walk carefully, otherwise you may not be eligible for the deduction you expect.
Business travel expenses are potentially deductible if the trip is made in the United States and the expenses are "ordinary and necessary" and directly related to the business. (Travel expenses abroad may also be deductible, but stricter rules apply than those discussed here.)
At present, business owners and the self-employed are potentially eligible to deduct business travel expenses. Under the Jobs and Tax Reduction Act, employees can no longer deduct such expenses. The possible deductions discussed below assume that you own a business or self-employed person.
Business against pleasure
Transportation costs to and from the place of your business activity may be 100% deductible if the primary purpose of the trip is commerce rather than pleasure. But if holidays are the main reason for your trip, none of these fees is usually deductible.
The number of days devoted to business and pleasure is the key factor in determining whether the main reason for domestic travel is commerce:
- Your travel days count as working days, just like weekends and holidays – they fall between days devoted to business and that it would not be practical to go back at your house.
- The days of waiting (days when your physical presence is required) also count as working days, even if you are not called to work during these days.
- Any other day devoted primarily to commercial activities during normal business hours shall also count as business day.
You should be able to state that a company was the main reason for a trip to Canada if working days exceeded personal days.
What transportation costs can you deduct? Travel to and from your departure airport, airline tickets, baggage fees, gratuities, taxis, etc. The cost of traveling by train or driving your personal car is also eligible.
Once at your destination, your refundable fees for business days are fully deductible. Examples of such expenses include accommodation, meals (subject to the 50% cancellation rule), seminar and convention fees and taxi fees. Expenses for personal days are not deductible.
Keep in mind that only expenses for yourself are deductible. You can not deduct expenses for family members traveling with you unless they are employees of your company and they travel for a genuine business purpose.
Justification is Critical
Make sure you accumulate proof of the commercial nature of your trip and keep it with your tax records. For example, if your trip is made to attend customer meetings, connect everything on your daily planner and copy the pages for your tax file. If you are attending a conference or seminar, keep the program and take notes to show that you attended the sessions. You must also justify all expenses that you deduct.
Additional rules and limits apply to the deduction for travel expenses. Please contact us if you have any questions.
Any questions? Contact William Rogers.
Author: William Rogers MBA, CFP, EA is the founder of Ascend Business Advisory, a tax and financial advisory firm in San Diego, USA. California. He holds a BS in Business Management from the University of Redlands, an MBA from the University of Southern California and an MS in Finance from the University of California. Golden Gate University. His practice specializes in business start-up services.