Tax Tips 2007 - Deducting business trips
- From: tax-education@xxxxxxxxx
- Date: Mon, 3 Dec 2007 10:39:29 -0800 (PST)
www.smartmoney.com
Deducting Domestic Trips
When vacation is the main reason for travel, you can't deduct any
transportation expenses. On the other hand, if the primary reason for
the trip is business, Internal Revenue Service guidelines say you can
deduct 100% of your transportation costs for travel within the United
States. So the trick here is to make business the principal purpose of
your trip and then mix in some vacation days. Do this correctly and
you can deduct all of your transportation costs.
What might that include? Getting to and from the airport, your
airfare, cabs to and from your hotel to your business meetings and
even the tips you give to the porters to check-in your bags. You can
also deduct 50% your business meals. Of course, you don't have to fly
to get tax write-offs. The cost of traveling to your business
destination and back by rail or car will fall under the same rules.
The only thing that generally isn't deductible is your out-of-pocket
expenses for personal days, although there's a handy way around this
if you stay over a Saturday night, which will be addressed below.
So how do you prove a domestic trip is primarily for business? Good
question. The critical factor is the time you spend on business vs.
fun and games. Beyond that, the IRS doesn't supply any specific
guidelines, so we have to look for clues in the rules regarding travel
abroad. Here the IRS says you can count travel days as business days.
Ditto for weekends and holidays -- that is, providing they fall between
business days and it would be impractical to return home. You can also
count "standby days," i.e., days when your physical presence is
required, whether or not you are actually called upon to work. (These
could be days when your client asks you to stick around, but she isn't
100% sure she's going to need you.) Any other day when your time
during normal working hours is mainly devoted to business activities
also counts as a business day.
Bottom line? As long as you have more business days than personal
days, you can claim your trip was mainly for business with a straight
face.
Stay Saturday Night and Deduct Even More
If staying over a Saturday night substantially reduces your airfare
and thus the overall cost of your business trip, the IRS has a deal
you can't beat. Based on a recent IRS ruling, you can deduct all of
your transportation expenses, all out-of-pocket expenses for your
business days and all of your out-of-pocket expenses for staying the
extra Saturday and following days -- even though you just goof off on
those extra days. In effect, the extra days count as business days,
because staying over actually saves money.
Naturally, you still must have a dominant business purpose for making
the trip in the first place. And as always, you can only deduct 50% of
your meal expenses.
Client or Employer Reimbursements
When your client reimburses you for travel expenses that you could
have otherwise deducted under the preceding rules, the payment to you
is generally tax-free, and obviously then not deductible. Ditto if
you're an employee. To get tax-free treatment, however, you must
supply your client (or employer) with an "adequate accounting." That
means an expense report, travel-reimbursement request or detailed
itemized billing on your invoice.
Self-employed people can deduct any unreimbursed business-related
travel costs on Schedule C, subject to the 50% rule for unreimbursed
meals and entertainment. Employees, however, must treat unreimbursed
business-travel expenses as a miscellaneous itemized deduction subject
to the 2%-of-adjusted-gross-income floor. That rule precludes any
actual write-offs for most employees.
Deducting Trips Abroad
If you take some personal time on a foreign business trip, the general
rule says you must allocate all your travel expenses -- including
transportation -- between your business and personal time. This is
known as the "allocation rule." Often times, however, this rule is
easily avoided: With a little planning, you can take advantage of two
gaping loopholes and thereby deduct 100% of your transportation
expenses.
First, there's the "one-week loophole." If your foreign business trip
lasts one week or less, you can automatically deduct all your
transportation costs (plane fare, cabs to and from airports, etc.).
This is true even if you actually spend most of your time vacationing.
In figuring the length of your trip, don't count the day you leave,
but do count the day you return.
Of course, you can also deduct out-of-pocket daily living expenses
(hotels, cabs, tips, 50% of meals, etc.) for all your business days.
Needless to say, you can't deduct daily living costs for vacation
days.
As explained earlier, the definition of "business day" is pretty
liberal. To wit: Weekends and holidays falling between business days
count as business days. So do intervening weekdays between business
days and standby days. Finally, you get to count days when you
intended to work but couldn't for reasons beyond your control (e.g.,
transportation difficulties or the party you were supposed to meet
falling ill).
What if your foreign business trip lasts more than a week? Not a
problem. Just plan ahead to take advantage of the 25% loophole. If you
qualify, you can once again deduct all your transportation costs and
all of your daily out-of-pocket living expenses for business days. The
trick here is to make sure you spend less than 25% of your total days
vacationing. Count your day of departure and day of return as business
days. Ditto for all the other types of business days listed earlier
under the one-week loophole.
Help! I Can't Use Those Loopholes!
Relax. Even if you're stuck using the allocation rule, you should
still get a nice tax break by deducting the business percentage of
your transportation costs. (Again, this is assuming the primary reason
for the trip is business.) To figure the percentage, simply divide the
days spent principally on business by your total days outside the
country, including travel days. Travel days count as business days,
along with all the other kinds of days covered above. And as always,
you can write off your out-of-pocket daily living expenses for the
business days.
And keep in mind, the allocation rule doesn't apply to travel legs
that begin and end on U.S. soil. For example, say you fly from
Baltimore to Hong Kong. You have to change planes in San Francisco
both ways. So even if you don't qualify for either the one-week
loophole or the 25% loophole, you can still deduct 100% of the cost of
the outbound leg from Baltimore to San Francisco and 100% of the leg
from San Francisco back to Baltimore. The allocation rule applies to
the remainder of your airfare (the legs between San Francisco and Hong
Kong).
Foreign Conventions
If the reason for a business trip outside North America is to attend a
convention directly related to your trade or business, you must follow
all the preceding foreign travel rules. Plus you must also show it was
just as reasonable for the meeting to be held in the foreign location
instead of in North America. If this is truly an international
convention with attendees coming from several countries, this
shouldn't be a problem. If, however, this is pure boondoggle (i.e.,
there's no reason that the conference was held in Spain other than
that it's a lovely destination), you're out of luck. In that case,
your deductions are limited to the convention registration fees and
other costs directly related to any business conducted during your
trip.
.
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