Although the 21st century has provided us with a multitude of lightning fast communication options the “face to face” meeting continues to remain a favored method to conduct business. The internet, cell phones, teleconferencing and the like are certainly important and useful in their own right, they have not replaced the business trip. In addition, many taxpayers are beginning to plan trips that combine elements of both business and pleasure. Business trips, conventions, and continuing education seminars in exotic locations can provide an interesting and enjoyable vacation style opportunity and at the same time generate legitimate deductions. Although the basic rules are relatively simple, there are a few rules that you should keep in mind when planning any business trip.
Business Travel - The Rules
Taxpayers who travel away from their tax home on business are permitted to deduct travel expenses, including fares, meals, lodging, and incidental expenses, if they are not otherwise lavish or extravagant. A business trip is "away from home" if it takes enough time that the taxpayer may be reasonably expected to need sleep or rest. A taxpayer's tax home is his regular or principal place of business, or his regular abode if he has no regular or principal place of business. You are not prohibited from enjoying non-business or personal activities while on a business trip, but the primary reason for the trip must be related to your trade or business.
Foreign Travel
Foreign travel expenses are subject to some limitations that do not apply if the business trip is within the United States. Some of an individual's foreign travel expenses may not be deductible if he or she takes part in substantial non-business activity during the trip. Taxpayers who travel outside the U.S. for longer than one week or spend less than 75 percent of their time on business are subject to allocation rules, which operate to partially disallow their expenses, unless they had no control over the trip arrangements or the vacation portion was not a major consideration of making the trip. The general rule is to allocate expenses, including meals and lodging, between business and non-business on a day-to-day basis. Each day is either entirely for business, or it is considered to be a non-business day. A day counts as entirely for business if the taxpayer's principal activity on such day was the pursuit of a trade or business. In addition, a day is counted as a business day if any of the following factors are present:
¨ The individual was traveling to or from an overseas destination in pursuit of a trade or business.
¨ The individual's presence outside the U.S. on that day was required at a particular place for a specific and bona fide business purpose.
¨ The individual was prevented on that day from engaging in the conduct of his or her principal business activity due to circumstances beyond his control.
¨ The day was a Saturday, Sunday, legal holiday or other reasonably necessary stand-by day, which intervened during the course of the taxpayer's trade or business.
Staying Over
Due to airline pricing policies, it is sometimes economical for a business traveler to stay over Saturday night although business concluded on Friday. The additional lodging expense may be more than offset by the lower airfare as a result of the Friday and/or Saturday night stay-over. In such situations, the additional meals and lodging expenses for the Friday/Saturday mini-vacation may be written off entirely as part of the deductible as ordinary and necessary expenses of the trip.
If, on a business trip during the week, a certain day is devoted primarily to pleasure, that day's expenses are not deductible. Although this may be a nondeductible expense that the business traveler is willing to pay, take care not to devote over half of the time you spend away from home on pleasure. In such a case, none of the transportation expenses involved in getting to and from the location are deductible. On the other hand, if more than half of the trip is devoted to business, all of the transportation expenses may be written off as a business expense.
Business Travel - The Rules
Taxpayers who travel away from their tax home on business are permitted to deduct travel expenses, including fares, meals, lodging, and incidental expenses, if they are not otherwise lavish or extravagant. A business trip is "away from home" if it takes enough time that the taxpayer may be reasonably expected to need sleep or rest. A taxpayer's tax home is his regular or principal place of business, or his regular abode if he has no regular or principal place of business. You are not prohibited from enjoying non-business or personal activities while on a business trip, but the primary reason for the trip must be related to your trade or business.
Foreign Travel
Foreign travel expenses are subject to some limitations that do not apply if the business trip is within the United States. Some of an individual's foreign travel expenses may not be deductible if he or she takes part in substantial non-business activity during the trip. Taxpayers who travel outside the U.S. for longer than one week or spend less than 75 percent of their time on business are subject to allocation rules, which operate to partially disallow their expenses, unless they had no control over the trip arrangements or the vacation portion was not a major consideration of making the trip. The general rule is to allocate expenses, including meals and lodging, between business and non-business on a day-to-day basis. Each day is either entirely for business, or it is considered to be a non-business day. A day counts as entirely for business if the taxpayer's principal activity on such day was the pursuit of a trade or business. In addition, a day is counted as a business day if any of the following factors are present:
¨ The individual was traveling to or from an overseas destination in pursuit of a trade or business.
¨ The individual's presence outside the U.S. on that day was required at a particular place for a specific and bona fide business purpose.
¨ The individual was prevented on that day from engaging in the conduct of his or her principal business activity due to circumstances beyond his control.
¨ The day was a Saturday, Sunday, legal holiday or other reasonably necessary stand-by day, which intervened during the course of the taxpayer's trade or business.
Staying Over
Due to airline pricing policies, it is sometimes economical for a business traveler to stay over Saturday night although business concluded on Friday. The additional lodging expense may be more than offset by the lower airfare as a result of the Friday and/or Saturday night stay-over. In such situations, the additional meals and lodging expenses for the Friday/Saturday mini-vacation may be written off entirely as part of the deductible as ordinary and necessary expenses of the trip.
If, on a business trip during the week, a certain day is devoted primarily to pleasure, that day's expenses are not deductible. Although this may be a nondeductible expense that the business traveler is willing to pay, take care not to devote over half of the time you spend away from home on pleasure. In such a case, none of the transportation expenses involved in getting to and from the location are deductible. On the other hand, if more than half of the trip is devoted to business, all of the transportation expenses may be written off as a business expense.
