How to Combine Business & Personal Travel and it’s Tax Consequences

May 31, 2013

a businesswoman at the airportWith the beginning of summer, a lot of people start thinking about taking a vacation. And the best kind of vacation is one where you can get someone else to pick up the tab. The second-best is the kind when someone else pays for at least part of the expense.

If you can manage to combine a business trip with pleasure, chances are that you can write off some of the expense when it comes time to file your income taxes.

This can be especially beneficial for self-employed people, who don’t have an employer to pay for certain costs; any part of the trip that is legitimately concerned with conducting business can be deducted as a business expense on Schedule C.

The IRS has some very strict guidelines that help to determine which travel expenses are deductible, so be sure to check them out before you make your plans.

And, it goes without saying, it’s critical to keep extremely detailed records of every penny that you spend while on your trip, because you may have to substantiate your deductions if you are ever subjected to an audit.

Purpose of Travel

The main purpose of the trip should be business. If you’re going to a 3-day business conference, say from Wednesday through Friday, it would be OK to stay for the weekend for sight-seeing. However, don’t try to stretch a one-day business excursion into a week-long vacation; the IRS will not agree that the main purpose of the trip is business, in a case like that.

You can legitimately deduct your travel expenses – transportation, hotel, and half of all meals – that are associated with the business part of the trip. If you take a potential customer to an entertainment venue, maybe a concert, then half of that expense is also deductible.

Also be wary of spending too much money on business trips. The IRS frowns on expenses that it deems “lavish or extravagant” – although these terms are, of course, subjective. But booking the Presidential Suite at a fancy hotel when you are attending a business convention would likely fall into that category.

If you take a side trip to a nearby town, however, just for fun, any transportation or lodging should be treated as a personal expense. Ditto any tickets to entertainment events that are not work-related.

a hotel well lit at nightTaking Family Along

And what fun is a vacation if you don’t bring along family with whom to enjoy the trip? Taking your spouse and your kids when you’re going to a particularly fun location is a no-brainer. But be aware – any expenses incurred by family members must be classified as “personal,” unless you actually employ your family members within your business.

And employing your ten-year-old to clean your office or deliver flyers around the neighborhood will not qualify that child for a deductible travel expense.  Even if your child hands out flyers for you at your booth at the convention. The IRS will not consider your child a “necessary expense” and will disallow any deductions that you attempt to claim.

If, however, your spouse also acts as your sales assistant, or you work together as a team, then by all means his or her transportation and meals should be deductible.

Even if you cannot deduct your family members’ transportation and meals, you can fully deduct your lodging if you have not upsized the room from what you would ordinarily rent for just yourself.

Foreign Travel

Foreign business travel comes with its own set of IRS rules that are somewhat more complicated than for domestic travel. The rules also vary for trips of less than one week in length, versus longer trips.

For longer trips, each day must be designated as completely business-related or completely non-business-related, and the appropriate costs allocated to business or non-business accordingly.

Certain other factors can affect the allocation of foreign travel expenses, so it would be best to consult a Los Angeles tax preparer in advance to help you sort out all of the options, if you are planning to travel overseas for business and pleasure.