What’s the trip of your dreams?
Hiking in Sedona, Arizona; then roaming the little shops in Tlaquepaque looking for that perfect gift for your special someone?
Taking the family for a fun week in Orlando, Florida; snapping pictures of giggling kids with Disney characters?
Cruising the Mediterranean, sipping champagne on the deck before dinner?
If you’ve ever been to a seminar where the person on stage was talking about business – whether it’s network marketing, real estate, or writing a food blog – at some point they probably claimed that one of the perks of owning your own venture is that you can write off all your travel, regardless of where you go.
Is that true? Well, it really depends on where you go and what you do when you get there.
The key to writing off travel as a valid business expense is knowing the rules before you set out.
A few years ago, I took a trip to Maui, Hawaii with my business partners. We had a wonderful time – hung out in a fabulous location, ate some great food by the ocean, did some sightseeing, and still complied with IRS rules.
How did we do it? By knowing exactly what we needed to do before we booked the trip, following the rules meticulously, and logging everything.
The first rule is: Travel to and from the location can be claimed as a business expense only if the purpose of the trip is for business.
If you’re traveling to San Francisco for a week and plan to meet a business colleague one afternoon to discuss a deal, your airfare doesn’t qualify. You aren’t spending enough time on business activities.
If you’re attending a course for 4 days to improve your marketing skills, and you decide to spend an additional couple of days hanging out with your friends, it does qualify. The purpose of the trip is to attend the training, and most of the days will be spent in business-related activities. You’re just tacking on a couple of days at the end to relax.
One thing to note: If you’re attending a class to teach you to become something you aren’t already – for example, you’re a personal injury attorney and this class is going to teach you how to flip real estate, and
– and this is important –
you’ve never invested in real estate before, so this class isn’t teaching you how to get better at something you already do …
then you can’t write off the class or the travel as a business expense.
On the other hand, if you’re a real estate attorney, and you’re attending the class to learn more about the issues your clients are facing, then the class does qualify and so does the travel.
Another thing to note: Only your travel may be written off unless the folks you’re traveling with are also part of your business and will be working most of the days.
And by the way, travel days, weekends and holidays count as workdays.
The second rule is: You can write off daily expenses only if you have worked at least 4 hours that day.
The rule states that you must work at least 50% of the time. Since the standard work day is 8 hours, that means you need to work 4 hours or more each day to write off the expenses for those days.
Do the 4 hours have to be contiguous? No. But they should be in large enough chunks that it’s easy to see you’re actually working, not making a 10-minute call here and there while you’re visiting friends by the pool.
Four one-hour periods in a quiet location making sales calls would qualify.
Now, if you’re in network marketing, ambushing unsuspecting servers at the bar for 15 minutes doesn’t count. The person you’re talking to should have a reasonable expectation that your discussion will be about business. It would be pretty much impossible to convince the IRS that that’s true of your bartender or server, especially if you do it frequently.
To ensure you can back up your claims to the IRS, it’s a good idea to log the amount of time you worked, when, and what you did. It’s hard to argue with documentation recorded at the time the event occurred. So, take lots of notes, including time stamps.
What happens if you set up a meeting for an afternoon and the person calls in sick at the last minute?
Well, that time still counts. If there is no one to cover for that person and you need to return to your hotel, it isn’t your fault. If the appointment was to run from 1pm – 5pm, you still have your 4 hours.
Daily expenses cover transportation, food and lodging. Unless your clients are billionaires, you’re probably going to have a problem explaining why you need to drive a Lamborghini and drink champagne every meal.
Do what you would normally do for your business.
Once your travel to and from the location, and your lodging, transportation and food are written off, most entrepreneurs want to know what else they can charge to the company.
The third rule is: Any reasonable expense that helps you produce a profit in your business is a candidate to be a write-off when you’re traveling.
Need to be relaxed and on top of your game for a presentation? That massage before you go on stage counts.
Need to look powerful and professional for your next meeting? That haircut and manicure count.
Just found out the folks you’re meeting expect you to wear a tie - and you don’t have one? That purchase counts.
However, as my partner is fond of saying, pigs get fat and hogs get slaughtered; so, don’t let that tie become an Armani suit and expect to get away with it – unless your business meeting is with Giorgio Armani.
Common sense really prevails in this area, and going overboard could trigger a full-blown audit.
Sending a few pieces to the laundry while you’re traveling is fine. Most of us travel with mix-and-match outfits, and may need to get one or two things laundered over the week.
Just don’t combine the clothes you wore on your trip with a pile of others waiting to be dry cleaned, and try to convince the IRS you took all of them with you.
You’ll get far more credibility if you separate business from personal, and charge business expenses only.
There are exceptions to the travel rules above.
Cruises cannot be deducted if any of the ports are international; and even if not, there are lots of hoops to jump through.
International travel also has its own rules. Expect to work at least 75% of the time.
And entertainment can no longer be written off, so you’ll need to pick up the cost of that golf game out of your own pocket.
With a little thought and planning, your next dream trip may be paid for in large part by your business, as long as that business qualifies as a business and not an expensive hobby. But that’s a topic for a different post.