Common wisdom says you shouldn’t mix business and pleasure; however with the right planning and documentation you can swap meeting in a plain boardroom to a meeting on the boardwalk and deduct it.
Special rules apply to the deductibility of your trip if you incorporate a personal vacation during your business travel.
If your travel is primarily for vacation and you spend only a few hours attending professional seminars or meeting with business clients, in that case, none of the expenses you incurred in traveling to and from the general destination are deductible. You can only deduct the business portion, and to effectively do this, you need to document business-specific activities on a day-by-day basis. That means you’ll need to do more than answering a few work emails.
If your trip is primarily for business and meets the following conditions, then expenses incurred to and from your destination are deductible in full.
You travel for less than one week (this excludes the departure day but includes the day of return).
If you spent 75% or more of your total time on business activities, then all other ordinary and necessary travel expenses are fully deductible. However, if 25% or more of your total time was on personal activities, you must keep day-by-day documentation allocating all travel expenses separating personal and business activities, and only the business portion is deductible.
You can establish that a personal vacation or holiday was not a major consideration.
You did not have “substantial control” over arranging the trip.
When determining what constitutes business and personal time, first, you must travel outside your normal business area. Business days include days to or from the business destination without a side excursion. If weekends or standby days fall between business plans, those days still count. You could potentially “wrap your weekend” by scheduling business plans on both Friday and Monday; hotel and meals (no entertainment) on Saturday and Sunday still count as business days and are entirely deductible even though you are not working.
Nonbusiness days are days you spend on nonbusiness activities. It can include weekends, holidays, and standby days that fall at the end of the business activity if you remain at the business destination for personal reasons.
The key to ensuring your business trip is deductible is proper DOCUMENTATION. The easiest way to document your business travel expenses is by storing receipts and keeping an activity log for each day of your travel. Why keep a receipt and not simply use a bank statement? A receipt is better than a bank statement because certain items have different deduction rates. Plus, you can use a receipt to help track your business activities throughout the day in an activity log. An activity log is a suitable method to record and prove that your trip was primarily business to potential auditors.
As you can see, you cannot jump on the next plane to Miami and write off the trip as one giant business expense, but with some strategic planning you can mix business and pleasure whole maximizing your tax savings. If you need additional tax guidance, please call The Garabedian Group.
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