Topic: Taxes & Accounting
Time Investment: 10 Minutes
Suggested Product: BizRevamp®
Heading to some fabulous destination and wondering if you can write off your vacation? Watched other photographers travel the globe and wonder if they are writing off these travels?
So can you write off your family vacation if you do paid sessions at your vacation destination?
The answer is Yes, but….
If you follow the rules laid out by the IRS, business owners are permitted to “write off” or deduct some aspects of their vacation expenses, even if the trip is not solely for business.
You Must Schedule Business Appointments Before You Leave
In order for any aspect of a trip to be allowed to be deducted, you must have at least one business-related appointment set up before you leave home. Specifically, the IRS requires you to be able to demonstrate a “prior set business purpose.” Documentation is key, as you will discover, and you should keep a copy of your correspondence and diaries showing scheduled appointments. Basically, don’t head off on your trip “hoping” to be able to do some business along the way, you have to show that you had at least one meeting set up ahead of time.
Smart Scheduling can optimize deductibility
As a good rule of thumb: count of the days of your travel and make sure that the days where the primary purpose of the travel is business outnumber the vacation days. Your travel days count as business days, as do weekends, if you have a meeting on a Friday, and another on a Monday. This way your travel would be 100 percent deductible, and your out of pocket would be the expenses related to your vacation days.
Travel Must Be Primarily for Business Purposes
Remember that rule of thumb? Keep it in mind as you plan your schedule. You must be traveling away from your office or place of business for longer than an ordinary day of work. Once away at least for one night, you can deduct 100 percent of transportation costs – whether airfare or mileage.
Any layovers made for personal reasons cannot be deducted.
Only Your Expenses Can Be Deducted
While it can be great to have your family along for the ride, you are only allowed to deduct the expenses you would typically incur on a solo business trip. Only your ticket, for example, if you travel by air is deductible. If you travel by car, it is 100 percent deductible because you would incur the same expense alone. Only 50 percent of the cost of your food is deductible, along with only the lodging you would normally have occupied. That means if you typically rent a single hotel room, but need a suite so there is room for your children, you can only deduct the cost of the room you would normally book.
What can you Deduct?
There are specific rules about what you can and cannot deduct if you bring your family with you on a business trip. IRS Pub 463 lays out all the details, but here is a short summary:
- For every day on your trip that is a business day, you are able to deduct 100 percent of your lodging, tips, and car rentals. For example, you will be able to deduct your hotel bill for those business days (but not for the extra vacation days). The cost of a hotel room will still be deductible, but only up to what a single room would cost. For example, if a single room at a hotel would cost $180 and a family room costs $250, then only $180 would be deductible.
- For every day that’s considered business, you can deduct 50 percent of your food costs (this includes tip and tax).
- The cost of a rental car or taxi rides to and from work locations or the airport will be fully deductible since the cost is the same regardless of how many people are in the car. If this travel includes use of your car, you can deduct business-related mileage, tolls, and parking as well.
- You can also deduct other travel-related expenses that are “ordinary and necessary” (for example, baggage fees, laundry, or dry cleaning).
- Shipping baggage and sample or display material between your regular and temporary work locations.
- Golden Rule: Any separate costs incurred by family members are not deductible (same rule for meals).
Travel Outside the United States has additional requirements
The above rules only apply for travel within the United States. If you plan to travel internationally, the IRS has stricter standards when allowing for deductions. For the complete set of rules about deductions for overseas travel, see IRS publication 463.
In summary, for an international trip to be deductible it must be more than 75% business if you are traveling for longer than 1 week. If your trip doesn’t meet that threshold, your travel costs must be prorated.
Documentation Is Essential
The best protection is documentation. That’s not the secret of life, but it is the secret to surviving a tax audit! In the case of seeking to deduct travel costs, documentation is especially important. Keeping itineraries, schedules, programs as well as receipts and copies of your work diaries are useful for verifying the number of days of your trip. While the IRS does not require that keep receipts for expenses less than $75, you do need to keep a log of the time and date of expenses. In addition to the diary and pencil method, there are a number of apps that allow you to keep these records on the road and send yourself expense reports that can be passed onto your accountant or used as you prepare your own taxes. Whatever method you use, you need to be able to keep track of the time, place, amount and business purpose of each expense.
Get into the habit of documenting everything, including who you spoke with at what meal, what you spoke about, and how it was related to your business. For example, if you take a client to dinner, you will need to have evidence of the name and location of the restaurant, who was present and what business was discussed to satisfy an auditor.
Rather than keeping track of the exact cost of meals during business travel, the IRS allows for a per diem (a set amount for meals per day). Be aware that this isn’t an option for international business travel.
So can I write off my family vacation if I do paid sessions at my vacation destination?
Yes, but your intentions matter. Be honest about whether this is a business trip with some vacation days as well, or a family vacation where you’re trying to get a business tax deduction. There are serious penalties if you are unable to substantiate your claim if you are audited – you not only lose that deduction and be liable for additional tax, as well as interest and penalties.
Follow the IRS’s rule and there’s no reason you can’t add a few extra days of fun when you are traveling for business. Document everything and enjoy making the most of being a creative business owner.