Vacation Costs As A Business Expense
Tax Reform has cracked down on many travel-related deductions. But there are still deductions you can take for travel, and you should not miss those that still apply.
Traveling for Business
Travel expenses. You can fully deduct the cost of getting to and from your destination on a trip made primarily for business reasons. This expense remains fully deductible, even if you extend the trip for pleasure or take a side trip for pleasure. In addition, during the business part or your stay, you can deduct the cost of hotel, lodging, local transportation, and 50% of meals and business-related entertainment.
Example: You travel to New York City strictly for business reasons and decide to take a side trip for the weekend, vacationing at a sumptuous Long Island beach resort. The trip between New York City and home remains fully deductible, as long as you can prove you traveled there for business. But the cost of traveling between New York City and the resort is not deductible because that part of the trip is entirely for personal pleasure. Also, the related expenses of meals, lodging, and local transportation while at the beach resort are not a deductible business expense.
Mixing business with pleasure. The cost of traveling to and from your destination on a trip made primarily for vacation or pleasure isn’t deductible, even if you conduct some business while on the trip. However, some of the other business-related expenses may be deductible.
Example: You go on a vacation to Florida, but while there you take a customer who lives in Florida out to lunch. Under Tax Reform, 50% of the meal expense is deductible if business was actually discussed during the meal. Be sure to include tax, tips, and parking-lot fees at the restaurant when calculating the 50%. The cost of traveling to the restaurant, if you take a taxi, for example, is 100% deductible.
Ship travel can be an asset on a combined business-vacation trip. Reason: Days spent in transit count as business days in the allocations formula. Example: A two-day business meeting in Paris is followed by a two-week European vacation. If you fly (one day each way), only 22% is deductible (two business days plus two days of travel out of a total of 18 days away). But if you sail (five days each way), 46% is deductible (two business days plus 10 days of travel out of a total of 26 days away).
Acceptable Per Diem
Is there an official rate of per diem meal expenses that the IRS accepts as reasonable while working away from home?
The IRS recognizes a standard per diem meal allowance equal to the greater of $26 to $38 depending on the location, or the rate allowed by the federal government to its employees in the locality where travel occurs.
When reimbursements exceed the per diem, an employee must report them in income and claim an offsetting travel-expense deduction, while maintained all the records necessary to do so. But an employee who received no more than the per diem allowance from his employer need not report it in income.
The per diem allowance can be used only by employees receiving reimbursements. Self-employed persons cannot use the allowance to get an automatic deduction for expenses.