July, 2006 Tax Tip
Business and Pleasure Can Co-exist
As we enter the prime vacation months, I thought it might be appropriate to tell you how you can add some well-deserved vacation time to your business trip and enjoy some tax savings while, at the same time, complying with IRS rules. At the outset let me say that, due to some tax limitations on deductions for employees, the primary beneficiaries of this perk are self-employed individuals.
First, and probably most important, the primary purpose of the trip must be business. Short and simple. While guidelines are not provided by the IRS, a good rule of thumb to follow is that the trip is a business trip if there are more business days than personal days. The IRS does shed light on what constitutes a business day. Its position is that any day that your time during normal business hours is mainly spent on business activities is a business day. This would include days when you are on standby waiting to be called in by clients or associates to discuss or perform business matters. Travel days also count as business days as do weekends and national holidays if they fall between out-of-town business appointments and returning home would not be practical.
If the trip qualifies as a business trip under the preceding paragraph, you can deduct 100% of the transportation cost for travel within the United States (including Alaska and Hawaii). You can also deduct 50% of the cost of business meals. Be sure you separate the cost of meals and cost of lodging on hotel bills. Transportation costs include ground transportation to the airport, hotel and business meetings; air, train, or bus fares; and tips related to the foregoing.
Nondeductible costs include expenses incurred during the vacation days. However, a fairly recent tax ruling may allow you to include vacation day expenses if your trip includes a Saturday night stay. To qualify, you must have received a reduced round-trip airline ticket price if you have a Saturday night stopover. If staying over on a Saturday night significantly reduces your airfare and the overall cost of your entire trip, the IRS allows a deduction for all your expenses for the Saturday stay (50% for meals) regardless of whether the extra days involved are business or vacation days.
It should be noted that the above discussion relates only to domestic business trips. There are much more stringent rules relating to foreign business trips, which will be the subject of a future newsletter.
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