The new tax passed in late 2017 nixed the deduction for business travel for employees, so the following is related to small business. If you are an employee and have been footing the bill for your own travel expenses, try to renegotiate your contract. Your company can deduct the expense, but you can not. Maybe they should pay you a bit more.
Business travel is deductible - If you do it right, you can legally combine it with a semi-deductible vacation. We like it when clients take trips where there is business, but fun too. The IRS can not disallow a deduction based solely on the fact that there was some fun involved. The travel, lodging and half of the meal costs of a business trip are deductible. What is a business trip? Here are the rules:
The primary purpose of the trip must be business. How do you prove that? Keep a good log of things done relative to the business and the time spent. For example, studying your seminar preliminary topical notes by the pool with a pina colada would constitute business time, if you are a physician. When preparing your log, you can leave out the part about the pool and drink.
Reading the local real estate sections (if you are an investor, buyer or rental property owner) could qualify as business time spent. You don't have to detail that you happen to be doing it on the shores of a beautiful beach.
Primary purpose means that the reason for the trip was money. More than half the days spent in the area must be for business, or considered business days. It's all right to vacation the other time, but that must be only a secondary reason for the trip.
A business day is considered any day in which more than four hours is spent on business. Since a normal day's work is eight hours, four is half, more than four is considered all right. Your log should indicate this. We recommend that you don't spend 13 or 14 hours on business one day and take the next 4 days off. Spend 4 1/2 hours each day for more than half the days and you will be good.
If you sign a contract on any day, it is considered a full day. So we advise to sign contracts early in the morning, take the rest of the day off.
If you stay a weekend, no problem if it is legit. For example, arrive on Tuesday, attend meetings for the required time on Tuesday, Wednesday, and Thursday, then more the following week, no problem. If you stay a weekend without more work to do the following week, still all right if the reason was it was cheaper air fares, the additional costs of lodging, half of meals and incidental expenses will still be deductible.
If you decide to take the spouse along, it still can be deductible, but be even better prepared to defend it. Lets assume that a double room on the water costs $350 a night. You might expect that you should be able to deduct half that since the wife came along. Wrong. You can deduct the single rate which may be $295. Find out and get proof. Food, local business travel, and your airfare are deductible for yourself. If the spouse is involved in the business, deduct it all.
Short foreign trips
You are a Boston psychiatrist and go to Turks and Caicos for a one day psychiatric convention. You fly Monday, the all day convention is Tuesday. You dive and snorkel Wednesday and Thursday, you fly back on Friday.
The trip (including travel) took 5 days, less than a week. The entire trip, lodging, half your meals, plane fare is deductible. The cost of the diving and snorkeling excursions is not.
25% Foreign Extended Trip Rule (more than a week)
If your trip is more than a week, a tough call. If more than 25% of the time spent on a foreign business trip is personal, and you can not prove that the trip was arranged primarily for business reasons and that the vacationing was only a minor consideration, you have to allocate your travel expenses accordingly. The business travel is still deductible, the personal is not.
As you can see, this is a little murky. Count the number of days spent on the foreign trip, including the day you leave the country and the day of return. Simply divide this number into the business activity days, these business days include the days of travel to and from business events.
More than a week foreign example:
Your association is hosting a series of educational seminars in Bali. There are 7 days of study, six hours per day. You leave on the 2nd of the month and return on the 11th. That's ten total days. There is only one day (10%) not devoted to business. The trip qualifies as deductible. If it were a 5 day educational training session, it would not qualify, but would have to be allocated. Since three days were personal, 30% is personal and 70% business.
It's a little tougher to qualify for a foreign business trip when you want to have a little fun. Local (50 states and D.C.) is much easier for longer business trips.
We suggest that you combine them if you can. Take a local trip, add a few days (five or six) to a foreign hot spot and return. Much easier to qualify.
Keep a good log. Without one, you lose. The IRS doesn't trust us, so we have to prove all our deductions. They are the final judges (unless you want to go to tax court) because the government is so honest in every way and they determined that if they say so, therefore they must be right.