Whether you run a small business, or own an investment property, it is quite common to have overnight business trip. You know the travel expense is tax deductible. However, when it is not 100% for business, is combining some personal vacation ruin the tax deductible?
The answer is yes or no, it really depends.
I can walk you through the rule in details.
What Travel Expense Really Means?
To understand what travel expense means, we need to first divide this term into two components:
- On-the-road expense
- Transportation cost
1. On-the-road expenses
The on-the-road expenses mean the cost to support your business trip on the days you are travelling on the transportation and the days you conduct business. The related cost can be lodging, laundry and meals.
In other words, these on-the-road expenses (say lodging, meal, laundry etc) are not tax deductible for the days you spend for your vacation. These can be deducted only for the days you conduct business during your business trip.
2. Transportation cost
Transportation cost means the actual cost of your airfare or vehicle mileage. If the whole trip was for business, all these expenses are certainly 100% tax deductible . However, what if you combine some personal vacation time off during the trip?
Then, we first need to know whether your trip is within the US.
If so, you can deduct the transportation cost 100% only if your trip is primarily for business. Primarily’s definition is to spend over 50% of the days for business. If not, none of the transportation cost can be deducted (the above on-the-road expenses are still deductible on the days you conduct business though). No prorated percentage is allowed if the days for business was less than 50%.
If the trip is to oversea and it’s longer than 1 week, primarily’s definition is 75% of the days for business. Once it’s over 75%, you can deduct the transportation cost by the prorated percentage. None of the transportation cost can be deducted if the days you spend on business is less than 75%.
If the trip to oversea is less than 1 week, I have a good news for you. As long as you conduct business for one business day, the whole airfare is tax deductible for international flight within 1 week. You don’t even need to bother to prorate the business portion to the airfare. (again, the above on-the-road expense rule still applies only to the days you are travelling and the days you conduct business, no deduction when you are spending the days for your vacation)
How to Define Business Days?
For weekends being sandwiched between business meetings on Friday and Monday, the weekends are business days.
The days you spend on transportation are business days.
The business meetings scheduled in advance are business days.
The day you attend seminar or training courses are business days.
In general, the business days should at least more than 4 hours per day.
I hope the above rules can help you better understand how much you can deduct as travel to run your business or to care take your rental property. Documentation is the key to being audit-proof especially your trip has combined with your vacation days.
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