It is the that time of year again, when most people are on vacation – or at least they wish they were. With the current heat wave in Portland, many would probably go for an Alaskan cruise right about now. Whether it is colder weather you are looking for or a tropical paradise, if you are business owner, you should talk to your CPA or accountant about business planning trips and travel expense rules to make sure you are maximizing your deductions without getting too aggressive or raising your audit risk.
Whether you have an LLC, S-Corporation, Corporation, or a Single-Member LLC – you should consider an annual business planning meeting where you can get away from the everyday distractions that steal your focus and layout out your short and long term goals and strategies, look into new products or technologies, and brainstorm solutions for overcoming obstacles and bottlenecks in your business. Without even getting into taxes, this makes sense from a marketing standpoint and would seem vital for a business to continue to thrive and grow. Unfortunately, IRS agents are anything but marketers, so you have to make sure your deduction is well supported.
How do you maximize travel deductions that are also well supported before the IRS? Here are my recommendations:
- To write off the actual travel expenses to and from the destination, the trip must be related primarily to the taxpayers business. If the trip is primarily personal in nature, then these costs are not deductible and only the expenses incurred while at the destination allocable to the business are deductible.
- Document in detail all the business planning you completed on the trip, write-out the goals you came up with, and take care of any annual minutes and formal documents that should be completed for your entity. Scribbling on a bar napkin will not cut it; in fact, the more documentation the better in this case as you need to prove substantial business reasons for the trip.
- If your spouse joins you on the trip, his or her expenses are generally only deductible if they are an officer, shareholder, member, director, or employee of the business – or if there is a bona fide business purpose for them to be on the trip.
- If it is a foreign trip, more detailed rules apply. If the trip is seven days or less in length and primarily for business, then the travel is fully deductible. However, if the trip is over seven days, the travel expense deduction is restricted if 25% or more of the days are not business days. It becomes complicated as you can take advantage of “intervening days”, so you should definitely talk to your CPA or accountant first.
There are other considerations and the facts and circumstances of each trip need to be considered. There is no clear rule on the number of personal days allowable before it becomes primarily a personal trip. Also, bringing children on the trip can further complicate the issue as it can make it look much more like a personal vacation. If anything – just make sure you document, document, and document some more, and again – I strongly suggest talking to your CPA or accountant before setting up a business planning trip that you intend to claim a business travel expense.
There is only a little over a month left of summer – get out there and do some business planning! 🙂