Are you taking “business vacations” or just “personal vacations”?
This tax tip post will teach you the ways you can create “business vacations” that give you valuable tax deductions.
I feel the rules generate much tax savings and the rules also provide specific steps/tasks to make sure you get the benefit of those rules.
As usual, I have to start with my disclaimer: These tax tips are based only on US tax law and as I am no longer a practicing tax professional, I insist that you consult a professional tax adviser before you begin to utilize the steps I have included here in this post. Especially for my great world-wide readers, consult your tax adviser to learn if my tips here apply in some form in your country and/or state.
Here’s my usual upfront video but it’s not an overview video this time so be sure we read the post in full:
This tax benefit of deductible business vacations is afforded to us in great deal because we have a home-based business. Our customers, clients and prospects don’t often come to our home business office so we have to go to them and they can be anywhere in the United States or in any other country for that matter. (Another disclaimer – my tax tip here applies only to travel in the United States. There are special rules related to international travel that I have not included in this post. Again, consult your tax professional.) For us, as US home based business owners, this means that wherever we travel in the US and when we follow the established rules (to be explained below), we can be sure that the travel is “business travel” with the related tax deductions.
Once the trip qualifies as “business travel”, reasonable business-travel expenses become tax deductible. And catch this – this is true even if the trip is combined with a personal or a family vacation!
As you are probably already thinking, specific expenses related to the personal portion of the trip are not tax deductible,
But if you’ve met certain requirements (to be explained below) for your combination business/personal travel, you can take the following deductions:
- 100% of your transportation is tax deductible regardless if you travel first class or by any method of transit as long as it wouldn’t be consider “lavish” or “extravagant” considering the specific facts and circumstances
- 100% of lodging, taxi fares, car rentals and tips are tax deductible and
- 50% of your meals during “business days” (to be defined later) is also tax deductible
The IRS requirements come in two forms:
First is the “IRS’s 3-Part Test”:
Part 1 – The travel must be usual and customary within your type of business
Part 2 – The travel must be conducted with the intent to obtain a direct business benefit
Part 3 – The travel must be appropriate and helpful to developing and maintaining your business
Parts 1, 2 and 3 are not either/or alternatives. All must be met including the next requirement plus more in this post.
Note: Claiming “everyone is a prospect” doesn’t make the trip qualify as deductible business travel.
The second form of requirement by IRS is the “51%/49% Transportation Rule”:
In other words, the trip must be primarily (51% or more) to conduct business activity, but note the fairly high percentage of personal purposes that can be included for the trip to still qualify by meeting all the requirements. The method that proves that 51% or more of the trip is for business activity is to prove that more than 1/2 of your days away qualify as “business days”.
Ok, now its time to define “business days” since once you know this definition, the calculation is so easy to determine if your trip qualifies under this requirement.
“Business days” are the following:
(Again the 3-Part test and the 51%/49% transportation test must be met)
1) travel days, the day you travel to and the day you return from your business destination making each of those whole days “business days”
2) days on which your time spent on business activities is more than four hours making that whole day a “business day”
AND 3) any day where you go to “pre-scheduled business appointment” (yes, a definition of “pre-scheduled business appointment” is coming next, which is very good so we can know for sure if this day becomes a definite “business day”.)
Very beneficial note in regards to food and lodging expenses for “business days” (because you’ve met the above definition of a “business day” for that day) even if your trip does not include enough “business days” to meet the 51%/49% rule: the meals and hotel costs for those specific “business days” are deductible, but you may not take a deduction for any of the transportation costs for that trip. So you’re not totally out of deductions if your “business days” don’t make up 51% of your trip.
Definition of “Pre-Scheduled Business Appointments” to create deductible “business days”:
“Pre-scheduled business appointments” must meet the following standards:
First, we have a definition for “pre-scheduled” as well as a separate definition for “business appointment”, and again definitions make it easy for us to determine if our situation meets the definitions.
“Pre-scheduled” as you guessed, means you made arrangements before you left, an easy yes or no here.
“Business appointment” is any meeting or activity that is customary considered “business” for your industry or business category, not likely too much gray area here.
Now that we have the definition of a “pre-scheduled busness appointment, we are well on our way to use a “pre-scheduled business appointment” to make that whole day a “business day” regardless of how much or how little time the “pre-scheduled business appointment” takes. I love that the pre-scheduled time can be as little as an hour, but that makes the whole day qualify…
In order for your “pre-scheduled business appointment” to qualify, you must do all three steps below:
Step 1) Schedule it in advance
Some proof is required here and a little explanation of that proof if it is an appointment personally devised by you rather than by your company. If you have devised the appointment yourself, write an email to the person you are meeting thanking them for agreeing to meet with you at the date, time and place to talk about the specific business purpose. The bolded words are the proof that is required. Print a copy of the email sent and that is your proof that the “business appointment” was “pre-scheduled”.
Step 2) Attend the appointment or activity
No explanation needed here
Step 3) Prove that you attended
And the prove isn’t hard to do and again email can be used for a personally devised appointment. After the appointment, send an email to the person you met with to thank them for meeting with you and mention some specific business benefit you received from the meeting with them. Then again, print a copy of the email sent, attach it to the email from Step 1) and these two emails prove the business appointment was pre-scheduled and you attended it. The result, that day is now a documented “business day”.
So now I have hopefully made it clear how to determine which of the days on your trip qualify as “business days” and then you can do the quick calculation (business days divided by total days) to see if the business portion of the trip reaches or exceeds 51%. First off though, I do recommend that you know for sure that your trip meets all parts of the 3-Part Test since both requirements apply fully.
I have one more great part of these travel deduction rules to relay that shows the IRS is often pretty good to home-based business owners like us and then I’ll be done for this post.
There are a few more important tips related to claiming business travel deductions like:
-Per Diem rates
-Rules when taking your spouse
-No deduction for seminars or meetings on cruise ships, with two powerful exceptions
-The strict, but easy, rules for keeping accurate business-trip records
This additional information will be coming your way soon!
In the meantime, if you were wondering if a weekend day or a holiday could be considered a “business day” that will make it easier for you to hit the 51%/49% test, here’s your answer and it reflects that the IRS supports small business owners.
If weekend days and/or holidays fall between “business days”, then those days are considered “business days too”! That’s it with just one test: If it would not be practical for you to return home for the weekend because of expense or time required, that cinches the deal and the weekend and holiday is considered a “business day”. This also works if the only reason you stayed over on Saturday night was to benefit from the discounted air fare. The requirement in this case is to show that the amount of money you saved on air fare exceeded the amount of money you spent by staying over. Of course, you must do this calculation before you book your return air ticket in case the savings isn’t enough to turn those extra days into “business days”. Then you’ll be able to make a decision that gives you the best tax advantage or at least know the results of your actions.
Alright, there’s a good share of the rules that apply when it comes to turning your trips into deductible business travel with more to come in the next post. I hope this post was written in a way that makes sense to you so that you can say “I now have some base tax knowledge on deductible business travel and it will be my starting point for acquiring my full knowledge in this area. My goal now is for most-to-all of my trips to qualify as deductible business travel! Also I’ll share my new knowledge with all my friends and colleagues.”
Committed to your Success!
Dawn, Dave, Gavin and Kimberly
DISCLAIMER: Dawn Cook is not a tax professional or tax attorney. Therefore you must consult with a tax professional before implementing this strategy.
About 
Twitter: paulreimers
says:
Thanks for sharing another great tax tip Dawn,
Deducting business travel is a really great perk to people with home based businesses. I appreciate your always sharing details of how to make sure that the records are in place to be able to make sure you can make the deduction and keep it. Thanks also for the IRS 3 question test. It’s a great reference to keep in mind.
Paul Reimers recently posted..Review of Empower Network – Will This Tool Really Help You Build Your Business?
Twitter: davidmerrill101
says:
I’m distressed to say, Dawn, that filing taxes for 2011 is NOT FAR AWAY.
I actually have to make an appointment with my cpa after this post. Otherwise, I get pushed off to a very late date (April 14?), and if there’s any reason for having to get more info or documentation together, it is a nightmare. I’ve learned the hard way to try to get a Feb, or at least EARLY March appointment to give me some cushion time for reworking things.
These tips are great to have in hand when I sit with my CPA this year. Many home business owners don’t realize the specific tax advantages they have, so thanks for this great outline!
David Merrill recently posted..List Building Strategy for Blogging Profits
Twitter: natashanassar
says:
Wow Dawn! This is some great information. Kudos to you for making the tax code simple to understand- that’s truly a valuable skill!
I’ve printed this one out for the file! Keep up the great work!
Natasha Nassar recently posted..Welcome To My Blog!
Whew! Dawn this is great information! My head is in a whirl with so much of it though, as I have never delved too much into business “stuff.” Thanks for writing this — I’m not traveling too much now, but I’ll use this as a reference when I do begin.
Am I to understand that if I had a 2-day weekend appointment only, that I couldn’t take 5 extra days for vacation, since I would be in the area and still have transportation covered? I thought at least the transportation would be covered as the purpose was for business, and the extra days were only because business took me to that area . . . ?
Pastor Sherry recently posted..Countering Destructive Thoughts
Hi Sherry,
Very good question! Thanks for giving me the opportunity to make this point clear. The 51%/49% rule could be met in this case if you traveled to the business appointment on a day separate from 1st day of your business appointment, in this case travel on Friday or sooner, and be sure you don’t travel back on the 2nd day of your business appointment, in this case, not on Sunday. By doing this, you would have 2 business days for your 2-day business appointment and 2 business days for travel thus giving you 4 business days out of 7 for greater than 51% business. If you could pre-schedule a business appointment, as detailed in the post, during one of the other 3 vacation days, you would create another business day and increase your business percentage as well as better the results for your business. Passing the 51%/49% rule for a primarily business trip makes all transportation costs tax deductible.
If you don’t have 51% qualified business days for your trip, the transportation would not be a business tax expense, but you could deduct the food and the lodging for the qualified business days.
I hope this answers your question, Sherry and again, thanks for asking a question that will be applicable to many people.
Dawn
Twitter: MUTUNGA
says:
WOW!!!
Thank you so much for this information. This is so helpful and will definitely make a difference for me and my business! Thanks
Dewane Mutunga recently posted..Google +1 Buttons Are Now On Display Ads
I knew about the tax advantages when it came to training, advertising, and office supplies for my home business but I wasn’t aware of the the ability to claim travel as part of that. Thank you for this post and breaking down the requirements in plain english. My hats off to you for doing the research on this, I couldn’t even begin to try to decipher the tax code myself.
Clint Butler recently posted..How To Get Traffic and Backlinks From Facebook
I heard about the tax advantages on business trip before. I regret not learning more about it as well as should have taken advantage of the opportunity. It doesn’t seem to feel complicated now that I had read your tips. Thank you for sharing, this can be very useful in my current employment.
Brian recently posted..dating manual
Dawn,
I really like how detailed this post is. Thank you it really helped me a lot in terms of business travel tax. I think that its favorable for us to have a home based business because of the incentives awaiting for them. Its the best way to make use of it. For someone like me who makes business trip very often, i think its very favorable to me and to people like me.
Thank you for the inputs!
Crescele recently posted..Cheating – When The Punishment Fits The Crime
Thanks so much for this detailed information. I don’t travel much, but when I do, I am working so yes, this applies to me. Even small trips are costly. I am going to bring this to my CPA’s attention. Now it’s time to dig up my receipts and tell him all about this. Thanks again, Donna
Donna Merrill recently posted..Do You Believe In “The Power of Prayer”?
Twitter: brotherbillamis
says:
Dawn,
this is fantastic and many of us fail to keep records of all our business expenses. This can be a simple plan paper not pad. Then at the end of the month place all expenses on a spreadsheet.
Simply put, everything you do for your business can be utilize in a tax break. So save all receipts from eating to gas. Think of speaking at a lunch as an expense. Your marketing your business with everyone. Get those receipts and log them in.
Dawn, this is awesome and will help everyone understand that your business is a great investment. Thanks for sharing.
William Earl Amis, Jr. III recently posted..Leverage Back By Demand!
Twitter: eldufauchard
says:
Oh my, so much good information here I was unaware of. The next year, I plan on traveling alot doing some speaking engagements and well, this post just saved me tons of money!
Thanks for taking the time to put all this valuable info into this post Dawn.
Awesome job!
Thank you,
Eldridge
Eldridge DuFauchard recently posted..Frustrated with the Job Market?
Twitter: incomestream
says:
Hello Dawn
Your explanation on how to make your trips qualify as tax deductible is very good. Several years ago I was audited because of business trips. The audit could have been prevent if I had what you are saying in this article. My audit turned out good but is required lots of time. Thanks for making this information available.
Thanks
Perry A Davis Jr
Music City
Perry A Davis Jr recently posted..Seven keys to developing strong relationships in network marketing.
Twitter: WillenaRose
says:
Thanks for this, Dawn! Such detail and thoroughness I’ve come to expect from you. I’ve never looked into it, but I suspect it works much the same here in Canada. It’s good to know, because even though I’m not travelling now, it may be in the future for me.
Willena Flewelling
Willena Flewelling recently posted..Standing on the Threshold
I have been doing this for years. I am always in marketing mode wherever I go. I plan my vacations to I can take advantage of this. Some have been connected to company events where I went on for a few days more travel. Also I am marketing all the way wherever I go. Sharing info and talking to people. You never know where the next prospect is. I save all receipts then take it all to our tax guy who tells me what is the latest rules are and what deductions I can take.
Melodie Kantner recently posted..Are You Attending Automobile University?
Twitter: prfuller
says:
Excellent tax tip Dawn.
I always claim my business expenses when travelling and I plan ahead to ensure I follow the rules.
Thanks for the detailed explanation.
Peter
Peter Fuller MBA recently posted..How to Build Your Prospect List
Twitter: raenalynntweet1
says:
Hi Dawn,
Wow! What an article! You certainly covered every possible scenario for business travel! Thanks for providing us with this information. There are some deductions I didn’t know about and it is obvious in this business that we will be traveling quite a bit. Tax information is always so complicated and lengthy. Your article breaks it down into smaller parts and simplifies the process of counting deductions and how to do them properly.
This article separated out the myths and now we can reap the benefits of the deductions as long as we follow the rules and provide the proof we need. Thanks!
Raena Lynn
Twitter: Part_TimeTed
says:
Dawn,
Awesome content. In the past I have never written off any of my business travel because I was unsure of how the IRS looks at it. I would rather not get all my deductions that to get into tax trouble. Now, that I know about this, I will be discussing it in more detail with an accountant. Killer advice. Thanks.
Ted recently posted..Free Content For Your Blog or Website
Dawn,
I never knew how easy it was to get tax benefits from a home based business. You lay it out so that even I can understand it, too. I am in the process of finding an accountant in my area. Thanks for giving me tips that I can make sure I ask about.
Jaden
Jaden Daniels recently posted..Do You Have An Entrepreneurial Spirit?
Twitter: kyleafterhs
says:
Thank you so much for that detailed information. It’s really cool to know that you can gain so many other benefits by owning your own business… you just have to know how to take advantage of these types of situations. I’m looking forward to making some business trips in the near future that I can write off!
Kyle Quinlan recently posted..You Don’t Need To Be Perfect
Twitter: jaclyncastro
says:
Wow, wow, wow what a lot of super cool and great-to-know “secrets” for saving in tax dollars. The one that impressed me the most out of everything you shared was the fact that we could count a business day as such if weekend days and/or holidays fall between “business days”.
And YES, I have (more than a little) tax knowledge on deductible business travel. There’s so much great information as I mentioned but I am establishing this post and info in it as my starting point for adding more knowledge in this area. This is definitely something I will share with my friends!!
Thank for always keeping us in the scope of all things biz tax related Dawn!
-Jaclyn Castro
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Twitter: ricsalas
says:
Hi Dawn,
I’ve always known there were tax advantages for business trips but never knew how to start taking advantage of them. Thanks for clearing this up for me and thanks for going through of the trouble of creating such a detailed post.
Rick Salas
Rick salas recently posted..Social Media Marketing Tips : A Hot Social Media Marketing Plan
Twitter: steveborgman
says:
Dawn: I’ve come to one conclusion after reading your post: I need to bring a tax professional with me on my trips! Just kidding
I’ll be better served to continue educating myself and to bookmark all your tax tips for future reference. Thanks so much for the great resource. Another question regarding home based business: what about incorporating? How important is it, or while I am making a low amount per year is it ok to be solo?
Steve-Personal Success Factors recently posted..Disregard This Advice To Remain Mediocre!
Steve,
Incorporating or not is a fairly complicated question because so many things can be important and deciding. The main thing to be concerned about may be liability more than level of income. You can be a single-member (LLC) limited liability company that provides liability protection as well as ability to still file a Schedule C on your personal tax return. And being an LLC can be cheaper to create and administer than a corporation.
I’d really suggest you get the skilled advice of a tax professional who can help you make that decision.
Your tax professional would probably love going on a trip with you…maybe that trip could cover payment for good deal of tax services..lol
Dawn
Twitter: KevinMartineau
says:
Hi Dawn:
Great tax tips! This is a very informative post. As far as I know this tax tips would apply in Canada too.
Kevin
Kevin Martineau recently posted..Facebook and change
Twitter: sadiemharris
says:
Dawn this post is smashing, you’re a wise lady
Very informative and although I’m based in France many of the tax rules would also apply to us here… we have very similar to your IRS 3 part test.
Both my husband and I have been able to make use of these rules and use them to our advantage for combining shopping trips, visiting friends and business travel for our respective businesses.
I’ve bookmarked this page;- I’m sorry to ask such a basic question having been around for a few months now;- Please can you tell be if this post is viewable to people outside of the TSA or is it only viewable by members.
Twitter: hollyfulfordjef
says:
Looks like several of the tips you have mentioned are similar to those here in Canada. I dont’ know them in detail, I give the info to my accountant and let them decide… so I guess I should get a little more into it and make sure I am getting all the advantages!! The tax write offs are great, but you gotta do the paper work with it!
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Twitter: martyinmaui
says:
Very helpful Dawn. I’ve spent most of my life traveling for business, but these days it’s rare. Still I am planning a lengthy vacation next spring and plan to continue working from my laptop while I’m away, so this information is extremely helpful. Thanks!
marquita herald recently posted..Achieve More by Rewarding Yourself for Small Successes
Twitter: monadvexp
says:
Dawn, you always make these really technical posts so clear and concise. Unfortunately I am in the U.K. Any chance of you coming over here and working out all our tax advantages in a similar fashion ? lol
Trevor Barrett recently posted..How Much Is A Billion Dollars?
So if I have an e-mail stating a particular meeting during a seminar, then that time can be counted right?
Lynda Cromar recently posted..Why MLM Events Are So Important To Individuals In Network Marketing!
Lynda,
If you are there for a seminar that lasts at least 4 hours then that fact alone would make that day a business day for the 51%/49% test. If the next day, you have a pre-scheduled business appointment that is documented by the “pre” and “post” emails mentioned in the post then that day would also be a business day. I hope that answers your question.
Dawn
Hi Dawn,
Thank you so much! I am taking a trip next week, and another in December, so this information is very timely and helpful for me. I made a copy of this post so that I can read it and make my notations on it for easy reference.
You don’t have to mention disclaimer for me…I trust ya wholeheartedly!
Keep up the great work!
Bestest, Linda
Linda Thomas recently posted..How To Avoid Home Business Burn Out
Hi Linda, I so appreciate your confidence in me, but I do make mistakes and may not be as current as someone who is currently practicing. Therefore, please still take my disclaimer to heart.
Thanks so much for your tremendous support!
Dawn
That was great! You really helped to clarify the situation for me. Most of my trips are obviously business trips (attending a conference or presenting at a conference in my profession which also provides CEU’s). But sometimes there is a nebulous extra day or I have left the conference and drove to visit someone, taking my return flight from a different state.
Warmly,
Dr. Erica
Dr. Erica Goodstone recently posted..The Divorce Myth – Redate Your Mate Before Too Late
Twitter: yboggledeals
says:
Dawn, I absolutely have taken advantage of this information. I did not know about the 51%/49% test. Since my business is a travel business, I have to inspect resorts, hotels, and cruises, I can legally deduct pretty much all my travel. My friends laugh when I say: “I have to go here and there”; they always tell me what a hard work, that is. Thanks for sharing, great post.
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Dawn
Thanks so much for this post!! I have been unsure about some of the business deductions I can take. I do a lot of traveling for business and usually mix it with pleasure too! So this is going to be a great help!!
Have a Great Day
Chester
Chester Delameter recently posted..But I never stole anything!!
Twitter: JupiterJimFLA
says:
Wow, Dawn,
Such detail!!!! I hope this becomes viral because this is something everyone should know about AND there is such detail here!!! Answers all my questions including : “51%/49% Transportation Rule” Thanks also for so clearly defining what a business day. I hear people talking about tax deductions for business trips and they have absolutely NO clue what the rules, regs, and stipulations are. But you do!!!
Thanks so much!
Jupiter Jim
Jupiter Jim recently posted..WordPress: Why should I blog? How do I get a blog following?
Jim,
Thanks for your kind comments! I do try my best and love to share what I do know as the starting point rather than the final word.
Thanks for your support!!
Dawn
Twitter: BobbiPrim
says:
WOW! What a GREAT article – so detailed and informative! I’m quite familiar with most home office deductions, but this article has really helped me understand the travel & entertainment deductions. I don’t travel a lot, but we do take weekend camping trips, at which time I do take my marketing materials and meet with people to discuss business – even other campers
Thank you so very much for sharing these tips – tax season is just around the corner so please keep the tips coming!
Bobbi Prim recently posted..Positive Thinking – Your Key to Success
Hey Dawn,
Thanks for providing such a detailed information on deductible business travel tax. I find it is attractive and beneficial for those who make frequent business trip nationwide or out from States. Frankly, I also think that American should at least own a home based business because of all the tax incentive given. More people should take advantage of it.
But, I am not sue if there is any restrictions on deductible taxes for employees who also build a network marketing business ?
Great post with excellent content needed by almost everyone !
Thank you, Dawn and Cheers
Pearly
Pearly Quah recently posted..Put A Price Tag On Your Network Marketing Business (Part 2)
Hi Dawn,
WOW…that is a lot of detailed information…thanks for sharing.
Since Uncle Sam encourages Home Based Business owners by offering tax incentives and generous deductions, we should certainly try to utilize those benefits to our advantage.
Unfortunately, that is one area that I have not been able to benefit from the tax breaks. I only travel once during the year and it is always strictly for pleasure.
I have been able to take deductions for single day and weekend getaways where I have spent time discussing business or showing a business plan and it is helpful.
I would certainly love to be able to deduct 100% of my transportation,100% of lodging, taxi fares, car rentals and tips and 50% of my meals during “business days” for future travel.
At least now I know just how lucrative that can be if we meet the criteria.
Keep educating us with these great tax tips,
Marc
Marc Korn recently posted..From Surviving To Thriving In 30 Days…7 Steps To Transform Your Life
Twitter: Gratitudethegame
says:
Hi Dawn
Thx for this post , I you know I am in South Africa but i think
we work more or less the same here.
There is a lot of ways that you can safe money on a legal way with
travel for Business, even Make up stuff for Woman so men need to
start to do some make up to get more back from mister Tax man LOL
Regards
Theuns
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