How to reap tax benefits from a summer vacation

If you’re self-employed and planning a vacation this summer, you could reap financial benefits by combining your summer getaway with a business trip. By doing so, you may be able to claim valuable tax deductions — if you plan carefully — and help fund a portion of your summer getaway costs.

Determining what’s deductible

From a tax standpoint, qualified trip expenses directly attributable to your business will be deductible if your trip’s primary purpose is business. The key factor in determining the deductibility of trip expenses is the number of days spent on business activities compared to the number of days spent on nonbusiness pleasure activities. If more days are spent on business than pleasure, it can typically be considered primarily a business trip.

Some days you might think are pleasure days could actually be considered business days for tax purposes. For example, if you must spend an extra day away between meetings, this could be considered a business day even if you’re not engaged in business-related activities that day. Plus, if adding personal days onto a business trip reduces the overall cost of the trip, you might be able to deduct certain expenses, such as lodging and meal  costs (partial) for these days.

Deciding what’s reasonable and necessary

The following costs are generally considered to be reasonable and necessary business travel expenses. They’re deductible if they are incurred during the business portion of your trip:

  • Airfares, rail, taxi and other transportation service fares,

 

  • Baggage handling fees,

 

  • Car rental or other vehicle usage fees,

 

  • Hotel, condo or other lodging costs,

 

  • 50% of meal costs for business days, and

 

But expenses you incur on the vacation days of your trip generally aren’t deductible. You can’t deduct costs incurred by your family members on the trip either. So, for example, while you can deduct 50% of meal costs for yourself on the business days of your trip, you can’t deduct your family members’ meal costs on business or vacation days.

Document, document, document

Thorough documentation of all trip activities and expenses is critical so you can easily distinguish between business and personal expenses later. This will help ensure that you claim all the deductions to which you’re entitled. And you’ll be able to prove your business expenses to the IRS in the event you’re audited. Consult with a tax advisor for more details on your specific situation.