Man turning his vacation into a business trip

5 Strategies to Turn Your Vacation into a Tax Deduction

One of the benefits of being a business owner is the ability to take tax deductions for business-related expenses. As you plan for your next vacation, make sure you take advantage of all the tax write-offs that you are legally entitled to, and that includes the wonderful opportunity to save on taxes by turning your vacation into a tax deduction.

So how exactly do you turn your vacation into a legitimate tax deduction? The easiest way to demonstrate this is to go over a specific example of just how this can be done.

As an example, let’s take Tim, who owns his own business. Tim decided he wanted to take a two-week trip around the United States. So he did—and was able to legally deduct every dime that he spent on his "vacation." Here's how he did it.

How to make your next vacation a tax write-off

1. Make all your business appointments before you leave for your trip

Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.

Wrong.

You must have at least one business appointment before you leave in order to establish the "prior set business purpose" required by the IRS. Keeping this in mind, before Tim left for his trip he set up appointments with business colleagues in the various cities that he planned to visit.

Let's say Tim is a manufacturer of green office products looking to expand his business and distribute more products. One possible way to establish business contacts—if he doesn't already have them—is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.

Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.

Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence, along with noting in his diary what appointments he will have.

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2. Make sure your trip is all "business travel"

In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100% deductible as long as your trip is business related, you are traveling away from your regular place of business longer than an ordinary day's work, and you need to sleep or rest to meet the demands of your work while away from home.

Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.

Tip: Remember: You don't need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.

3. Deduct all on-the-road expenses for each day you're away

For every day you are on business travel, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tim spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50% of this amount, or $25 a day.

Tip: The IRS doesn't require receipts for travel expense under $75 per expense—except for lodging.

Example: If Tim pays $6 for drinks on the plane, $6.95 for breakfast, $12.00 for lunch, and $50 for dinner, he does not need receipts for anything since each item was under $75.

Tip: He would, however, need to document these items in his diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation shall consist of amount, date, place, and business reason for the expense.

Example: If, however, Tim stays in the Bates Motel and spends $22 on lodging, will he need a receipt? The answer is yes. You need receipts for all paid lodging.

Tip: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry cleaning costs for clothes worn on the trip. Thus, the first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

4. Sandwich weekends between business days

If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.

Example: Tim makes business appointments in Florida on Friday and one on the following Monday. Even though he has no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.

5. Make the majority of your trip days into business days

The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities, otherwise you cannot make any transportation deductions.

Example: Tim spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them.

Thursday is a business day, since it includes traveling—even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tim accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days’ worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but after following these easy steps, most of his expenses will become deductible.

Turning a vacation into a tax deduction requires planning

As you can see, there are lots of creative ways that you turn your vacation into a tax deduction. All it takes is a little planning ahead. Before you leave for your trip this summer, be sure to apply some of these tips. Bon voyage!

Writing off your vacation as a business expense FAQs

Below we have summarized the most important questions and answers on the subject:

When can you write off a trip for business?

Being able to write off your vacation as a business expense takes planning. You'll want to:

Make all your business appointments before you leave for your trip
Make sure your trip is all "business travel"
Deduct all on-the-road expenses for each day you're away
Sandwich weekends between business days
Make the majority of your trip days into business days

How do you calculate travel expenses for work?

For every day you are traveling for business, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tim spends three days meeting with potential distributors. If he spends $75 a day on food, he can deduct 50% of this amount, or $35.50 per day.