How to (Legally) Deduct Your Next Business Trip Remember, you can't legally deduct a trip to the Bahamas in which you have a half day of meetings, then take five days of R&R on the beach sipping margaritas.
By Anna Johansson Edited by Dan Bova
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Business trips are often a necessary part of being an entrepreneur and business owner. But you don't have to let these trips run your bank account dry. There are ways to deduct them, as long as you stay aware of certain legalities.
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In general, expensing a trip isn't easy. You can't just round up the family, book a stay at an all-inclusive resort and write the whole thing off. There are certain rules you have to follow. Specifically:
1. The trip's primary purpose must be business.
It's pretty much a no-brainer that the primary purpose of any trip you expense must be business, not pleasure. In other words, you can't legally expense a trip to the Bahamas in which you have a half-day of meetings, then take five days of R&R on the beach sipping margaritas.
The rule of thumb is that the number of business days must outnumber any personal days. Travel days, however, do count as business activity, as does a weekend that's sandwiched in between work on a Friday and Monday.
As entrepreneur Nellie Akalp explains, "If you fly to Florida on a Thursday, have a meeting on Friday, stay the weekend, meet with clients on Monday and Tuesday and fly home Wednesday, you've actually accrued seven business days. This means you could spend another six days in Florida as pure vacation and still expense your transportation expenses."
2. Only your expenses are deductible.
It's important to understand that you can only count expenses that you or a paid employee personally incur. While your spouse and kids can come along on your business trip, you can't deduct their expenses. And don't try to claim that they're employees for the week! Many people have attempted this and the IRS looks at it with suspicion.
As for yourself, not everything can be expensed. The IRS approves travel and transportation, shipping of baggage and luggage, use of a rental car, meals, lodging and other "ordinary and necessary" expenses that may be incurred during travel.
Related: Tax Tips: 5 Rules for Deducting Business Meals
3. Keep good records.
If the IRS ever decides to look into a business trip you've expensed, you want to make sure you have the records and documentation to back up your claimed expenses. That's why meticulous recordkeeping is a must.
"You don't have to worry about keeping a pocketful of receipts while you are away," Akalp says. "The IRS doesn't require receipts for a travel expense that's under $75. However, just because you don't need the actual receipt doesn't mean you are off the hook for record-keeping. You still need to document all deductible expenses, including what you purchased, how much you purchased it for, and when."
4. Don't take risks.
Make sure you don't take unnecessary risks. That's the key to successfully expensing a business trip. It's not worth making up an expense or breaking the rules just to save a few hundred dollars. If the IRS ends up finding something it doesn't like, agents may open up a full-blown investigation and find other issues with your tax return. Just stick to the rules, and everything should be fine.
Three destinations to consider for your next business trip
1. Dubai
"Where skyscrapers rise from the desert floor and man-made islands, luxury yachts and towering golden hotels line the shores, you'll find Dubai," Trip.com notes. "Located at the heart of the United Arab Emirates along the Gulf on the eastern coast of the Arabian Peninsula, there's nothing small nor understated about this former fishing village turned oil-rich city-state."
In addition to its gorgeous scenery, Dubai has plenty of business conference centers and opportunities for entertaining clients, which makes it a solid choice.
2. Chicago
If you want to take a business trip and have some fun on the side, Chicago is a fantastic choice. It's home to a number of industries and can easily be expensed on account of visiting clients. In your free time, be sure to check out some of the many tourist destinations.
3. Toronto
Home to Canada's biggest financial services and manufacturing companies, Toronto is a huge North American business hub. It also offers business travelers good shopping, wonderful food and a diverse urban experience.
Related: 10 Ways to Save Time and Money While Traveling for Business
Enjoy your trip.
One of the wonderful things about being a business owner or self-employed professional is that you can set your own rules. If you want to choose where you take a business trip, do so. The key is to make sure you also stay above the tax rules when it comes to deducting business travel.
If you do so, you can get some work done and enjoy traveling the world without overpaying. Now, that's a good deal!