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Map out tax-wise business travel plans by taking the scenic route

by on
in Small Business Tax,Small Business Tax Deduction Strategies

The cost of gas started going up this spring. Now the airlines are passing the higher costs along to consumers.

Strategy: Keep taxes in mind for business travel plans. Depending on your situation, you might opt to go by car instead of plane if you’re expecting to tack some vacation time onto the trip.

In fact, you could wind up spending a lot less on travel while deducting much more.

Here’s the whole story: As long as the primary purpose for the trip is related to your business, you can write off all your qualified travel costs within U.S. borders. This includes expenses such as air fare, local transportation, lodging for business days and 50% of your meals for business days.

However, if a vacation is the primary motivation behind the trip, you can only deduct lodging and 50% of meals for the business days; the transportation expenses to get to the destination and return home are completely nondeductible.

How do you prove the “primary purpose” of your trip is business-related? Generally, you must show that the number of days spent on business exceeds the number of personal days while you’re away from home. For example, if your trip lasts two weeks and you spend 10 of those days on business activities, you qualify for business deductions, even if you spend the other four days on pleasure. Of course, the cost of personal side trips, such as seeing the surrounding sights, is nondeductible.

Be aware that you can count travel days as business days for this purpose. Plus, you can add in any weekends and holidays that fall between business days if it would be impractical for you to return home on those days.

Example: Initially, you were planning to fly to meet with a business client a few hundred miles away. Then you were going to extend the trip and do some fishing. The round-trip air fare was going to cost you $1,000. But you only planned to spend a total of three days on business and four days with rod and reel.

You figure that the cost of lodging for the one-week stay will run you $1,500, and you expect to spend about $100 a day on meals.  So your total out-of-pocket costs would be about $3,200 ($1,000 air fare + $1,500 lodging + $700 meals).

If you stick to this itinerary, you can’t deduct any of your transportation costs as business expenses and you can only deduct lodging and 50% of meals for the three business days. So your deductions would total only $793: $643 for lodging for the business days (3/7 x $1,500) plus $150 for meals for the three business days (3/7 x $700 x 0.50). Reason: You’re spending more days on pleasure (four) than you are on business (three). Therefore, the primary purpose of the trip isn’t business-related.

Now suppose that you change your plans. Instead of flying, you take a leisurely drive to visit the client. It costs you $200 in gas and tolls plus an extra $250 in lodging. This increases the number of business days, including your travel time, to five days. You still finish up the trip with four days of fishing. Total cost: $2,850 ($200 gas and tolls + $1,750 lodging + $900 in meals).

New result: The trip is business-related because you’re spending more days on business than pleasure—five days on business (including the travel days) to four days for pleasure. On these facts, you can now deduct a total of $2,400 ($200 gas and tolls + $1,750 lodging + $450 in meals (50% deductible), whereas before your deduction would have been zero. And you save $350 in expenses ($3,200 versus $2,850) to boot!

Tip: Keep detailed records of your business travel in case you have to prove that trips are business-related.

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