Excerpted from an article by Ryan Smith on Bench.com
Good news: most of the regular costs of business travel are tax-deductible.
Even better news: as long as the trip is primarily for business, you can tack on a few vacation days and still deduct the trip from your taxes (in good conscience).
Even though we advise against exploiting this deduction, we do want you to understand how to leverage the process to save on your taxes, and get some R&R while you’re at it.
Follow the steps in this guide to exactly what qualifies as a travel expense, and how to not cross the line.
The travel needs to qualify as a “business trip”
Unfortunately, you can’t just jump on the next plane to the Bahamas and write the trip off as one giant business expense. To write off travel expenses, the IRS requires that the primary purpose of the trip needs to be for business purposes.
Here’s how to make sure your travel qualifies as a business trip.
- You need to leave your tax home
Your tax home is the locale where your business is based. Traveling for work isn’t technically a “business trip” until you leave your tax home for longer than a normal work day, with the intention of doing business in another location.
- Your trip must consist “mostly” of business
The IRS measures your time away in days. For a getaway to qualify as a business trip, you need to spend the majority of your trip doing business.
For example, say you go away for a week (seven days). You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as business trip.
But if you spend three days meeting with clients, and four days on the beach? That’s a vacation. Luckily, the days that you travel to and from your location are counted as work days.
- The trip needs to be an “ordinary and necessary” expense
“Ordinary and necessary” is a term used by the IRS to designate expenses that are “ordinary” for a business, given the industry it’s in, and “necessary” for the sake of carrying out business activities.
If there are two virtually identical conferences taking place—one in Honolulu, the other in your hometown—you can’t write off an all-expense-paid trip to Hawaii.
Likewise, if you need to rent a car to get around, you’ll have trouble writing off the cost of a Range Rover if a Toyota Camry will get you there just as fast.
What qualifies as “ordinary and necessary” can seem like a gray area at times, and you may be tempted to fudge it. Our advice: err on the side of caution. If the IRS chooses to investigate and discovers you’ve claimed an expense that wasn’t necessary for conducting business, you could face serious penalties.
- You need to plan the trip in advance
You can’t show up at Universal Studios, hand out business cards to everyone you meet in line for the roller coaster, call it “networking,” and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance.
Before your trip, plan where you’ll be each day, when, and outline who you’ll spend it with. Document your plans in writing before you leave. If possible, email a copy to someone so it gets a timestamp. This helps prove that there was professional intent behind your trip.
The rules are different when you travel outside the United States
Business travel rules are slightly relaxed when you travel abroad.
If you travel outside the USA, you only have to spend at least 25% of your time outside of the country conducting business for the getaway to qualify as a business trip.
If you travel outside the USA but spend less than 25% of your time…
Read more: https://bench.co/blog/tax-tips/travel-expenses-deductible/