8 Tips to Turn Your Vacation into a Tax Deduction

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Vacation budgets are down, and IRS audits are up. But that doesn't mean combining a family vacation with business travel is a bad idea – just that you have to be careful and do it right.

A recent AAA survey predicts the average amount spent by a family of four for vacation this year will be $692, down 14 percent from last year’s $809.

One option for reducing your travel budget, especially if you travel for work, is to let Uncle Sam pick up part of the tab by deducting part or all of your trip.  Since some travel costs can be deducted as business expenses, there’s nothing wrong with writing them off: It’s why many professional organizations host their annual conferences at tourist hotspots.

But as CPA and Money Talks News founder Stacy Johnson explains, if you’re traveling this path, be careful. Listen to his advice in the video below, and then read on for more.

As Stacy said in the video, the rules for travel-related tax deductions are complicated. If you want to avoid a trip to Audit City, check these tips along with your baggage:

  1. Getting there. If the trip is primarily for business and within the U.S., the cost of your transportation is fully deductible both ways. If it’s international, the trip has to be at least 75 percent business in order to write off your plane ticket. (Less than that and you can only deduct the percentage related to business.)
  2. Cruises have special rules. To be deductible, a business-related cruise has to be aboard a ship registered in the U.S. and avoiding foreign ports.  You can only deduct up to $2,000 a year regardless of the length or frequency of travel, and you have to file a detailed written statement with the tax return.
  3. Overstay is OK but not covered. You don’t have to work all day, party all night, and leave when your business is done. A few extra days on either end of the business purpose won’t disqualify you for deductions. Just make sure the primary purpose of the trip is business, you have documentation, and you don’t deduct any expenses related to the recreational part.  
  4. Fitting in the family. You can’t deduct expenses for anyone who isn’t involved in the business of the trip – so unless they’re employees, the trick is to find overlap with what you would have to pay for yourself anyway. For instance, if you drive everyone in one car (yours or a rental), your deductible transportation got the entire family to the destination.  And if everyone shares a single hotel room, it’s deductible too.  Any fees for added occupants or an upgrade to a larger room to accommodate the family, however, aren’t covered. 
  5. Eat out at half price. While on deductible business trips, your meals and those of your business associates are deductible at 50 cents on the dollar.  
  6. Fixing other fees. Any kind of travel tends to rack up several incidental costs – taxi fares, Internet access fees, phone calls, tips, laundry charges. If these are in any way business-related, you can write them off – including seminar and conference fees.
  7. Track everything. As Stacy said in the video, this is an area of the law rife with abuse. Which means increased odds of the IRS asking you to justify your deductions.  So if you travel for business, keep meticulous records: not just receipts, but anything that helps prove your business purpose – itineraries, agendas, programs, and the like. 
  8. Be reasonable. The IRS can call foul on extravagant expenses. So, unless it’s typical in your business, don’t rent a Rolls or take a penthouse at the Ritz. Expenses should be “reasonable based on the facts and circumstances.”

Bottom line? If you like the idea of budget travel, learn what’s tax deductible and let tax savings pay for part of the trip.  While this is an area that can invite scrutiny, don’t ever shy away from taking deductions you’re entitled to.  But don’t be careless: Don’t claim a vacation was a “business trip” just because you kept up with work emails or popped into a branch office in Orlando on the way to Disney.

The IRS is clear: “The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip.”

If you want to dig through the details, check out IRS Publication 463: Travel, Entertainment, Gift and Car Expenses. And for more advice to keep you out of trouble, see 10 Tips to Avoid an Audit and Avoiding 13 Common Tax Mistakes.

Stacy Johnson

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