It is perfectly legal to deduct your next vacation. Here’s how to do it.<\/p>\n
To qualify for this deduction, you must meet the following two criteria:
\n1. You are self-employed or own a small business;
\n2. On your next trip, you combine business with pleasure.<\/p>\n
The first requirement is pretty cut and dried. By “small business” we are including any type of self-employment activity, full-time or part-time, home-based or “bricks and mortar”. This deduction applies to any type of small business entity: sole proprietorships, partnerships, corporations, and limited liability companies.<\/p>\n
The second requirement is somewhat trickier and will be the focus of this post.<\/p>\n
To deduct any U.S. trip, you can combine business and pleasure, but the primary purpose of the trip must be business. And here’s how the IRS defines a trip taken primarily for business purposes: the number of “business days” must be greater than the number of “personal days”. To complete the definition, travel days are considered “business days”.<\/p>\n
Here’s an example to clarify the rules: You take a 10-day “vacation” to Orlando. You spend one day getting there and one day getting back. You spend four days attending a seminar. The other four days are spent with Mickey Mouse & Company.<\/p>\n
Let’s tally up the days:
\nBusiness Days = 6 (2 travel days + 4 seminar days)
\nPersonal Days = 4 (doing theme parks)<\/p>\n
So, are the number of business days greater than 50% of the total days? Yes. So here’s what you get to deduct: 100% of your transportation expenses (even though 40% of your days were personal days) and 100% of your “on-the-road” expenses for the six business days, including hotel bills, cab fares, rental car, seminar fees, dry cleaning, laundry and meals.<\/p>\n
Keep in mind that the meal expenses are still subject to the 50% rule. In other words, when we say that “100% of your on-the-road expenses” (including meals) for the business days are deductible, the actual amount of the meal deduction will be 50% of the meals cost.<\/p>\n
Also realize that transportation expenses include air fare to and from your destination (if you take a plane). If you drive to the vacation spot, you can deduct the actual cost of gas or take a deduction based on the current IRS-approved mileage rate.<\/p>\n
The on-the-road expenses for the four personal days are not deductible. But you’re still getting a great tax break here. Assuming you spend $1,000 for transportation and the six business day expenses, a sole proprietor in the 35% tax bracket (15% federal tax + 15% self-employment tax + 5% state tax) saves $350.<\/p>\n
Before you take your next trip, do some planning to include business activities and let Uncle Sam help you pay for it.<\/p>\n","protected":false},"excerpt":{"rendered":"
It is perfectly legal to deduct your next vacation. Here’s how to do it. To qualify for this deduction, you must meet the following two criteria: 1. You are self-employed or own a small business; 2. On your next trip, … Continue reading