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There are two things I love in life. One is traveling and the other is creating tax deductions. So, when I travel, I do everything I can to make it a business trip.
Summer has just come to a close and many people squeezed in that last vacation. Also, with the holidays rapidly approaching, people are making their end of year travel plans now. If you are a business owner, this is a perfect time to talk about making that vacation or family visit at least partly tax deductible. I can’t tell you how many people I talk to at tax time that when I ask them if they have any travel expenses, they say something like this, “Well, I did go to California.” I ask them what they did there. They say, “Well, I visited my brother and took the kids to Disneyland.” I ask, “Did you talk to your brother about business?” “Oh yea, I did!” Had this person planned ahead, he could have made a portion, if not all, tax deductible. The lesson to learn here is that making travel tax deductible requires a little planning ahead and keeping good records.
As you are thinking about turning your vacation into a business trip, there are certain questions you should ask yourself while planning:
Where are you going?
First you need to decide where you want to go. You may want to visit a relative, or go to your favorite vacation spot or maybe try some place new. It doesn’t really matter where because you are going to create a business experience.
Why are you going and what will you do while you are there?
Ask yourself why you are going on this trip? If the answer is to visit your brother and go to Disneyland, it is the wrong answer. You need to create a business related reason to go where you are going. If you sell a product, you may want to make contacts with companies you can sell your product through. You may want to visit some suppliers. If you are in real estate, whether you buy or sell property, you can look at properties and network with realtors in the area. Let me give you an example. Joe owned a heating and air conditioning company and he wanted to go to the island of Maui in Hawaii. He researched heating and air companies on Maui. When he got there, he called and made appointments to visit those companies and network with them. He met with them in between having fun. He also made it a point to notice the heating and air conditioning wherever he went. Why did he go to Maui? He went to check out heating and air in Maui and the possibility of doing business there. That is the right answer.
How will you get there?
This is an easy one. No matter which way you choose to travel to your destination it is tax deductible. Also, how you get around when you reach your destination is also deductible.
Where will you stay and eat?
If you’re going to visit family or friends, often they will want you to stay with them. They may even want to feed you. While this will undoubtedly save you money, it will definitely limit your deduction. But, there is something called per deum. The IRS allows you to deduct a standard amount for meals when you are away from home overnight. Depending on the area, you can take from $46 to $71 per day for meals. It is often more than you spend in day, but is a valid deduction.
Of course if you stay in a hotel or motel, the cost is tax deductible. If you have the family with you, you will need to prorate the lodging expenses.
What kind of records should you keep?
When it comes to keeping a record of the trip, I suggest getting an envelope and putting a note pad in it. Here is how you use it:
- Write down the places you plan to go and the people you plan to talk to.
- As you meet with people, look at properties, or check out businesses, make sure you collect business cards, brochures, and make notes about what you experienced. Place these things in the envelope.
- Place any receipts you get for things like fuel, food, lodging, etc in your envelope.
- When you return home write a brief summary of your business experience.
When you are all done, you’ll have a nice packaged travel deduction as well as inarguable proof that you conducted business on the trip in the case that you were audited.
So you see with a little bit of effort, business owners can turn a vacation into a business trip and save potentially hundreds of dollars in taxes. So what vacation are you going to turn into a business trip?