When you’re running a small business, sometimes it can be hard to find the time for leisure. And, if you’re putting a lot of your income into growing your business, it can be tempting to combine your business travel with vacation.
Tacking a vacation onto a business trip is a great way to save money while getting in some relaxation. But remember, you can claim tax deductions or exclusions for business trips but not vacations, so it’s important to know what the rules are and what you can count toward your business trip, and plan accordingly.
Your Trip Must Be “Primarily” for Business
The first rule of planning a business trip combined with a vacation is that your trip must be “primarily” for business in order to qualify as a tax deduction. The easiest way to figure this out is to count how many days you’re conducting business, and how many days are strictly for vacation. You can’t claim a tax deduction for a business trip, for example, if you conducted one day of business while on a two-week vacation. You can, however, count stand-by days as part of your business trip if you have multiple meetings scheduled days apart, or if staying extra days lowers the overall cost.
What You Can Deduct
Business trip expenses that are tax deductible include anything that is necessary and reasonable in order for you to conduct business. This generally includes:
If you are bringing your family along with you on the trip, you can still deduct expenses you would have had anyway, such as your hotel room and rental car, but you can’t deduct expenses related exclusively to your family, such as their plane tickets or an extra hotel room for the kids.
Deductions vs. Exclusions
Depending on how you pay for your trip, you may qualify for a tax deduction or a tax exclusion. In either case, you will have paid for your trip out of your personal income. If your business is reimbursing you for the business portion of your trip, you’ll be able to claim an exclusion, so the reimbursement is not counted as part of your gross adjusted income. If you are not having your business reimburse you for the trip, the business portion can be counted as a tax deduction.
Calculating your deduction can be complicated, but you’ll be able to deduct the full price of your transportation, plus 50 percent of lodging and entertainment expenses. You can also deduct 50 percent of your meals while on business, or if you are traveling inside the United States, you can choose to take the standard daily meal deduction instead. The standard meal deduction will vary depending on where you are traveling, but is generally between $50 and $75 per day.
Talk to Your Tax Advisor
If you’ve got any questions about what you can or cannot deduct, or about the best way to pay for your business trip, talk to your tax advisor about how to maximize your savings.