Get a tax break on your next vacation
Doing business when you travel can grant you a tax break on your journey, but make sure to document everything.
How would you like to take a one-month trip all over Asia and Hawaii and write it off on your tax return? One of TaxMama’s clients did. Even after having the trip audited, the IRS agreed to allow all the expenses. Do you want to know the secret?
Repeat TaxMama’s mantra after me: document, document, document.
The simple secret to all tax-deductible expenses is keeping excellent records and documenting your business intentions, business purpose, and business-related activities.
Mary had always wanted to visit China. So this experienced film-set designer pitched a film producer working on a film about China. Once he accepted her proposal, she went to work. Mary started building her contacts in China -- the embassy, museums, artists, etc. She arranged for introductions to people whose homes or estates she could visit and photograph. The embassy helped Mary with a guide to organize her research.
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Satisfy the IRS, and reward yourself
After several weeks in Asia, Mary had a detailed journal and several albums laying out rooms, homes, offices, gardens, restaurants, night clubs, museums, etc. Mary had pictures and samples of fabrics, and contacts with suppliers. Although she went with a friend and had a wonderful time, Mary could prove the trip was primarily for business.
The interesting thing about setting up a business trip and planning it for business purposes is that good things happen. You get to make contacts with people you would otherwise never meet.
What happens when you make plans to meet with vendors, suppliers, advisers, consultants, experts, potential customers, or whoever is appropriate to your business? You stop being a tourist. You start meeting the locals. You are invited into homes. You learn more about the country, city or town you are visiting. As a bonus, you might sell your product or service, or open a new market for your company, or your boss’s company.
How do you go about planning a trip?
Decide where you’d like to go, and when. Then start looking for business-related activities taking place in that town. Are there conferences, workshops, courses, or
trade shows taking place there during your time window?
Can’t find organized events? Make your own arrangements. How can your boss or your business benefit from someone or something in that town? Can you arrange to tour a factory, or university, or other establishment? Are there experts who live in the area you could arrange to meet? Or, consider arranging for people to come meet with you.
Take a sweet fantasy trip
How about a week at the Chocolate Spa in Hershey, Penn.? Indulging oneself properly, including meals and travel, would cost at least $2,000 per person. If it’s 100% for business, you would save half the cost, after taxes.
Consider inviting a few key clients or business owners to a private four-day seminar or summit. Limit the attendance to five or 10 people to create a small, intimate group that could hold discussions in a pool or whirlpool. Charge a premium for attendance, say $500 or $1,000 per person (not including spa and lodging). Not only does Uncle Sam pay part of your tab, you’re making a profit, to boot.
Travel in a group
Get a free trip by organizing it yourself. Decide where you’d like to go, and convince 20 or more people to go with you. Talk to a travel agent or tour organizer or Passports.com. Find out how many people it takes for you to get a free trip, and go to the place of your dreams. While you won’t be getting any tax deductions for this pleasure trip, you won’t be paying for your own airfare or lodging. That’s worth more than a tax deduction.
Add an educational purpose for the trip, and add a fee for the education credits or continuing education units. You could make a little money. For instance, study the flora or fauna of a region, if you’re a scientist or naturalist.
Depending on your business or job, you could study an area’s architecture, drainage, traffic patterns, fashions, styles, cuisine, economics, shopping habits, means of entertainment, modes of transportation, communication, languages or interactions.
Arrange to meet local educators, chefs, designers, politicians, or other personages. Arrange to meet people you’ve always greatly admired but never had the courage to approach for yourself. It’s easier to ask them to speak to a group, isn’t it?
Not only do you travel for free, you get paid some pocket money -- and have the experience of a lifetime.
Deductions you will not get
A client took a community college class about travel writing. The instructor said they could write off their trips if they could sell articles about the trip. Not entirely true.
Most amateur travel writers get $50 or so per article. She spent more than $5,000 on trips, and earned $50 for her articles. Upon learning she couldn’t deduct her travel expenses, she was furious.
I pointed out to her that even if she could sell two articles a month for $100 each, she would only earn $2,400 a year -- still not enough to pay for her expensive trips. It’s important to determine whether your "business" can ever generate a profit before spending a fortune on travel expenses.
Ensure you get tax benefits
Once you’ve selected your chosen location or trip, start building a body of correspondence, planning the business or educational details of the trip. Keep excellent records.
In fact, since you plan to use this for taxes, print out the correspondence, research, etc. Print out your itinerary and put it in your tax file. Keep a journal or log of your activities during the trip -- or blog about it -- and print out the relevant entries. If you earned money during the trip, or as a result of the trip, include information about that in your tax files, too.
If you are going out of the country, it is particularly important to prove the business or educational relevance of the trip or meeting taking place in another country. The IRS is more careful about tax-deductible purpose when your travel takes you outside the United States. For instance, when it comes to conventions, seminars and meetings, the IRS says if the meeting could just as easily have been held in the U.S., they will not permit the deduction. Read more on IRS.gov. Read more in IRS Publication 463.
Tap into existing travel opportunities
Looking for a fun way to be more than a tourist, and perhaps get a business, education or charitable-contribution deduction? Explore the catalog of your local college or university. They all offer community education programs, some of which include day trips, or longer ones. In fact, here are some websites you might enjoy: Smithsonian Journeys, RoadScholar.org , GlobalVolunteers.org .
Eva Rosenberg is the founder of TaxMama.com and an enrolled agent licensed to represent taxpayers before the IRS.
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You're only supposed to be able to deduct expenses specifically related to business. Anything you do that does not have a specific business purpose on your trip is not tax deductible, and it is illegal to try to claim it as a business expense.
Another good reason to get rid of all deductions and have a flat tax rate.
My husband's brother takes "vacations" like this all the time - he's "above all that" - he's a computer Microsoft "genius" who is writing off a "vacation" on Maui as I type this....along with at least a 1/2 dozen other trips so far this year. And it's only June.
Kharma will catch up one day.
As far as vacations, IMHO, they should be like that show with the motto "Vacations with a purpose". Personally, if I'm not picking up and disposing of trash while our family is at the beach, helping humanity in some other way, or helping our voiceless pets, it is not a vacation for me.
Times have changed, but my husband's brother? He'll never change - he'll always consume more - leave a place worse than when he got there and remain forever ignorant. He also yells and treats waitpeople like crap. Why? Because he's never waited tables.
The premise of this article seems to be that you can take a personal vacation and deduct the costs by playing games. It isn't as simple or safe as the article implies.
My advice: If the primary purpose of your trip is not business, forget about deducting anything that isn't a direct cost associated with your business. Example: Take a week long vacation trip to Las Vegas and attend a two day business conference while there. Your deduction will be the conference registration and meals and lodging for two days. If your primary purpose was vacation, then no deduction for transportation. If your primary purpose was to attend that conference, then transportation will likely be deductible (for the conference attendee) but not those extra 5 days of lodging and meals.
By the way, travel as education does NOT generate an education deduction. There must be formal classes.
Finally, if you can cheat (not that I'm implying the author of the article is advocating cheating) and get away with it, you still don't have a legal deduction. (Maui, huh?)
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