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How to Deduct your Vacations

By Vidal Espinosa | Accounting

Mar 26

How to deduct your vacations

Have you ever dreamed of a way to legally deduct every dime you spend on vacations? Good news, It is possible! Let’s take Tom, a small business owner as an example. Tom decided he wanted to take a two-week trip around the US. So he did and was able to legally deduct every dime that he spent on his “vacation.” Here’s how he did it.

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 he left for his trip, Tom set up appointments with business colleagues in the various cities that he planned to visit.
Let’s say Tom is a manufacturer of green office products looking to expand his business and distribute more product. 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. For example, Tom 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 Tom to document this business purpose by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.

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 percent deductible as long as your trip is business related and 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. For example, Tom 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.

Make sure that you deduct all of your on-the-road -expenses for each day you’re away.
For every day you are on business travel, you can deduct 100 percent of lodging, tips, car rentals, and 50 percent of your food. Tom spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50 percent of this amount, or $25. The IRS doesn’t require receipts for travel expense under $75 per expense–except for lodging.

TIP: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip. Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

Make the majority of your trip days business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities, otherwise, you cannot make any transportation deductions. For example, Tom spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them. Thursday is a business day since it includes traveling – even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tom accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.

With proper planning, you can deduct most of your vacations if you combine them with business. Bon Voyage!

 

About the Author

Vidal Espinosa, MBA is the Founder and Principal at Invictus Advisors, a bilingual consulting and accounting firm whose mission is to be a strategic partner for business owners to make better financial decisions. Managing a portfolio of over 100 clients, with total assets over $10,000,000 he has lead the organization to open multiple offices throughout the United States and Mexico, increased their annual budget from $25,000 per year to over half a million dollars per year and tripled their office space. As a self-made author, entrepreneur and business owner he understands what it takes to start and run a business effectively.

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