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Get tax break on summer getaway

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in Centerpiece,Small Business Tax,Small Business Tax Deduction Strategies

airline ticketDo you need to get away from the rat race? There’s a way you can enjoy some much-needed time off this summer while Uncle Sam picks up part of the tab.

Strategy: Combine a business excursion with a vacation. For instance, if you’re traveling to a destination where you would enjoy personal activities, tack a few extra days on the end of the trip. The entire cost of the transportation—both coming and going—is tax deductible if you meet the tax law requirements.

Here’s the whole story: As long as the primary purpose of the trip is business-related, you can deduct all of your transportation expenses (the cost to get to and from the business destination) within U.S. borders. (Special rules apply to foreign travel.) This includes the cost of air fare and travel to and from the airport. The same basic rules apply if you travel by rail, bus or car.

On the other hand, if a vacation is the prime motivation for the ex­­cur­­sion, you can’t deduct a single penny of your transportation costs to and from the destination.

To prove that a trip is primarily for business reasons, you must show that the number of days spent on business exceeds the number of personal days.

Tax loophole: Under the IRS rules for allocating business and personal days, any day spent traveling counts as a business day. What’s more, you can also include any weekends and holidays falling between business days if it would be impractical to return home on those days. In addition, “stand-by days”—when someone is asked to stick around in case he or she is needed —count as business days whether or not that person is actually called in to work.

Similarly, days in which you intend to work but can’t because of some legitimate reason (e.g., illness of one of the parties) are treated as business days.

Example: Let’s say you leave for a cross-country business trip on Tuesday. You spend Wednesday through Friday in business meetings. Then you relax and play golf on Saturday and Sunday before wrapping up the deal on Monday. Finally, after spending some personal time sightseeing on Tuesday, you fly home on Wednesday. Thus, you’re officially away from home for nine days.

The weekend days count as business days because it would have been impractical for you  to have flown home and back again. Because you spent a total of eight days on business—two traveling, three in meetings, the two weekend days and one day finalizing the deal—you can deduct the entire cost of your air fare, all of the hotel stay except for the one personal day and all of your meals except for the one personal day (subject to the usual 50% limit on meal and entertainment expenses).

Tip: If you entertain the client on the golf course the day following or preceding a “substantial business discussion,” the cost is deductible as business entertainment.

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