Tax Deductible Vacation?

The rules for travel-related tax deductions are complicated. If you want to avoid a visit from an IRS auditor then check these tips before you book your flight.

1. Transportation cost: The cost of transportation is fully deductible both ways if the trip is primarily for business and within the U.S.  On the other hand international trips must be at least 75 percent business to write off your plane ticket. (If it is less than 75 business then you can only deduct the percentage related to business.)

2. Cruises rule:  A business-related cruise has to be aboard a U.S. registered ship  and the cruise must avoid foreign ports . . . follow that rule or your cruise will not be deductible. The maximum cruise deduction is  is $2,000 per year regardless of the length or frequency of travel.  Moreover, you have to file a detailed written statement with the tax return about the cruise.

3. Work and play is OK:  Your deductible business trip doesn’t have to start and end with business.  You can take a few extra days on either end of the business trip and it won't disqualify your business travel deductions. Make sure, however, that  the primary purpose of the trip is business.  Document the business purpose and expenses and don't deduct any expenses related to the non-business part of your stay.

4. Take the family too . . . just don’t deduct them:  You can take your family with you but you can't deduct expenses for anyone who isn't involved in the business of the trip.  Unless your family members are partners or employees don’t deduct their expenses.  You can  find overlap expenses, expenses that you would have to pay for yourself anyway.  For example if you are driving (your car or a rental) it doesn’t matter who is in the car with you.  Your car expenses was a necessary expense to get you to the business objective of the trip so it is deductible.  If everyone shares a single hotel room, it's deductible too. However, any fees for added occupants or an upgrade to a larger room to accommodate the family, however, will not be covered so be sure and document the single occupancy rate at the hotel.

5. Food is 50%  but that’s not a diet:  Your meals and those of your business associates are deductible at 50 cents on the dollar while on deductible business trips.

 6.  Looking for work?    You can deduct that too.  According to the IRS, "You may deduct travel expenses, including meals and lodging, you had in looking for a new job in your present trade or business. You may not deduct these expenses if you had them while looking for work in a new trade or business or while looking for work for the first time. If you are unemployed and there is a substantial break between the time of your past work and looking for new work, you may not deduct these expenses, even if the new work is in the same trade or business as your previous work."

7. Be reasonable. The IRS expects that your business expenses "reasonable based on the facts and circumstances."  The business travel expense category is NOT the place to de extravagant; that is unless you want to raise a red flag in an IRS auditor’s office.

8. Document everything:   Travel tends to rack up lots of incidental costs like seminar and conference fees, taxi fares, Internet access fees, phone calls, tips, laundry charges. All of these expenses that are in any way business-related can be deducted.  Again, document all of them.

9. One more time:  Document everything.  Keep meticulous records if you travel for business: not just receipts, but anything that might help prove your business purpose.  This includes things like itineraries, agendas, and programs.  Travel expense deductions are rife with abuse.  This means increased odds of the IRS asking you to justify your deductions.  Don’t worry about it . . . just document everything.