As the summer heats up, vacation season kicks into full swing. Employees with office jobs enjoy all those traditional perks like paid vacation days, while time-pressed, cost-conscious startups, small business owners, and contractors are left wondering how to get that much needed time off without jeopardizing their business and clients.
However, small businesses, startups and entrepreneurs have one advantage, and that’s the ability to mix business and pleasure…at least when it comes to expensing parts of your summer travel.
Here are some of the basics of what you need to know (but as with any general tax advice, it’s a good idea to discuss your specifics with a tax advisor):
1. The primary purpose needs to be business.
The IRS will let you deduct travel expenses if the primary purpose of the trip is for business. You can include a few days of fun in a business trip, but the majority of days must be for business activities. If not, you won’t be able to make any transportation deductions. So, if you have 3 days of client meetings (or a seminar) and 2 travel days, that counts as 5 business days – meaning you’d most likely be able to tack on 4 days of vacation and still have it count as a business trip.
2. What can you deduct?
In general, you’re able to deduct any transportation costs (plane tickets, taxis, airport parking, etc.) needed to get you to your destination. And as a general rule of thumb for U.S. based companies and startups, you can deduct 100% of lodging, tips, car rentals, and 50% of your food for any of the business days. Refer to IRS Pub 463 for all the details on which expenses can be deducted.
3. Sandwich a weekend between business days.
Normally, you can only deduct your on-the-road expenses only during the business portion of a trip. So, if you attended a conference Monday-Wednesday and then spent Thursday and Friday sightseeing, you would not be able to deduct your expenses for Thursday and Friday. However, if you have a business day on Friday and Monday, you are able to deduct your hotel, meal, and other costs incurred over the weekend too.
4. Document your expenses and keep all lodging receipts!
You don’t have to worry about keeping a pocketful of receipts- the IRS doesn’t require receipts for a travel expense that’s under $75. The one exception is lodging; you’ll need a receipt for any lodging expense, no matter how much. Keep in mind that just because you don’t need a receipt, you still must keep a good record of each expense. Consider putting all expenses on a business credit card, so you have a single paper trail.
5. Make sure you set up your business appointments before you leave.
You can’t just take off on a vacation and hope to be able to talk ‘business’ on the plane or find a new customer lead in the hotel lobby. The IRS requires that you have at least one business appointment already scheduled before you leave (what they call “prior set business purpose”).
As with any tax strategy, the best way to avoid trouble is to be honest about your intentions, deduct only the expenses you’re entitled to, and then keep all supporting documentation to back up those deductions. We all know how hard you’re working, so see if it’s possible to follow the rules while expensing the transportation costs to enjoy a few days of relaxation at the beach.
Editor’s note: This was originally written by Nellie Akalp for Elance.
This post was updated in June of 2018.