With a little bit of planning, you can combine personal & business travel and get some partial tax write-offs. While the IRS allows certain deductions for legitimate business trips, there are specific rules that determine what qualifies and what doesn’t. This post will discuss the IRS’s rules around domestic travel (there are additional rules governing business deductions for international travel). From identifying the primary purpose of your trip, to knowing which days count as “business days,” to separating your own expenses from family members who tag along, it’s essential to understand how the IRS views travel and how to plan. Let’s jump in!
Primary Purpose of Trip – The first consideration is the primary purpose of the trip. If the main reason for the trip is business, you can deduct travel costs to and from your business destination (airfare, train, car, etc.) However, if the primary reason for your trip is personal, then your travel costs will not be deductible. Although the IRS doesn’t provide a formula for determining a trip’s primary purpose, an important factor is comparing the number of days spent on business to the number of personal days (IRC §1.162-2(b)(2)). When advising clients, I will typically suggest that whichever is greater determines a trip’s primary purpose.
Business Days – Secondly, you need to understand which days are considered business days. The IRS defines a “business day” as:
- Any day where the “principal activity during working hours” is business (IRS Pub 463). For many businesses, a standard workday is 8 hours. As such, I will typically advise clients that spending more than 4 hours a day on their business is a reasonable way to determine if the “principal activity” of the day is business.
- Travel days – the days you spend traveling to & from your destination are business days.
- Weekend & holidays count as business days as long as they fall between two business days and it would be impractical to return home.
Who is Deductible – As the business owner, you can only write off expenses for yourself when conducting business. Bringing family or friends is fine, but their costs are personal and not deductible. The one exception to deducting the travel expenses of your spouse or kids is if they are employees of your business, and have a bona fide business purpose for coming on a specific trip.
What is Deductible – The only expenses deductible are those incurred a) on business days, and b) by an employee of the business with a bona fide business reason for coming on the trip. Within these parameters, any cost that is ordinary and necessary for business can be deducted. So, your lodging, meals, tips, car rental, etc. may all be deducted.
What is Not Deductible – The final consideration is clarifying which expenses are never deductible during trips. First, the IRS specifically calls out that “lavish” or “extravagant” expenses are never deductible, even if for business. While that does not mean you can never eat at nice restaurants or stay at upscale hotels during business trips, you should use discretion when splurging on nicer amenities. Secondly, any expenses incurred during personal days would not be deductible (e.g. food, lodging, fees to visit attractions, etc.). Third, when family comes along, you should separate out the additional costs you incur because of them (e.g. a hotel charges a $30 fee to upgrade from a single room to a family room; that $30 is not deductible), as well their direct costs (e.g. their airfare, their meals, etc.).
Recordkeeping & Documentation – Anytime you are traveling it is important to keep good receipts and records to substantiate your write-offs. Whether it is in your calendar, day planner, notebook, or other tool, make sure you document:
- What days you traveled
- What days you were on business
- What business activities you were doing & who you were with
- For meetings, make sure to either keep minutes & take good notes
- If appropriate, take pictures
- Finally, make note of which days were personal days
Let’s try to bring this all together with some examples:
- Example 1 – A business owner who lives in Pennsylvania has an annual get away to upstate New York to set goals & plan out the upcoming year. She rents an Airbnb for 5 days (Monday – Friday), prepares all the food there, and drives there. Her husband (non-employee) comes along. His presence does not change the mode of transportation or the size of the Airbnb. Each morning, she spends 5 – 6 hours working on her business. The remainder of each day is spent on leisure activities. Because she spent the majority of her working hours on business, those 5 days are considered “business days” and the fee to rent the Airbnb, the mileage reimbursement for traveling there, and her portion of the food are all deductible.
- Example 2 – The same business owner sets up business meetings with a client in Miami on a consecutive Friday & Monday. She takes an early flight on Thursday and spends the rest of the day relaxing on the beach. All day Friday she is in meetings with the client and it would be impractical to travel home for the weekend, she spends Saturday & Sunday in Miami relaxing and going sightseeing. On Monday she is in meetings with the client all day. Tuesday, she has a late flight home, so she spends her final morning on the beach relaxing. Because travel days are considered business days, and it was impractical to travel home on the weekend, all six days of her trip are considered business days. Apart from the beach & sightseeing, all expenses for this trip are considered business expenses and can be written off.
- Example 3 – The same business owner and her family of 4 fly to San Diego and spend 10 days vacationing there. Their hotel charges the same rate for a room whether 4 people stay in it or 1. During the trip, she attends a conference for one day. On another day, she spends most of the day visiting with a client at their office. Those two days are considered business days, and the hotel room and all her meals for those two days may be written off as business expenses.
At the end of the day, the key to deducting business travel is being intentional: plan ahead, keep thorough records, and know where to draw the line between personal and business expenses. As you look to the future, review any upcoming business trips for ways you can squeeze in some personal time and still get business write-offs. (i.e. examples 1 & 2). Also review any upcoming personal travel and determine if there are any legitimate ways to conduct business during that trip (i.e. example 3). With the right planning and documentation, you can enjoy your time away while also maximizing your deductions.
