Saving on travel taxes is one of the things you can actively do to help reduce your business’ costs. As with other deductions, you must be aware of the basic rules and plan in advance to make it work.
Here we’ll go over good easy ways to think about travel taxes. Then, we’ll turn to essential tips to maximize your deductions all while keeping you compliant.
What Are Travel Taxes?
The concept of travel taxes could be explained in the following way: A tax on your income that would otherwise not have been taxable because of your business travel. In other words, these travel expenses would be a line in your bookkeeping that would be deemed non-deductible. This would be due to the tax-rules/tax-law when coming time to do your income taxes. Therefore, this would lead to more of your income being taxed from not being able to take those deductions.
Another way to look at it is “how to take the most travel deductions.” We stress the words “the most” because, in many cases, you won’t be able to write-off all your travel. Especially when you’re taking a trip with “business” combined with “pleasure,” you’ll have to follow specific rules on what to deduct.
Here we’ll deal more specifically on strategies to maximize your travel deductions. For a more detailed run-through of the rules, go to this article.
Some Strategies To Deduct More Travel Expenses
Wouldn’t you like to save on your tax bill utilizing the travel and vacations you’re already taking? You can do that and much more by following simple strategies and adding some planning to your trips.
Set Up Meetings With Business Colleagues On Your Weekend Family Trip
Let’s say Melissa is taking a trip with her family for service from her church on a weekend. She usually takes this trip every year and she wonders if it’s possible to deduct at least part of it. Lucky for her, if she plans it a little bit differently, she can definitely take advantage of this travel. (This strategy uses principles from the rules on travel, please go to this article first and then to this example).
Her plane usually gets there on a Thursday and returns home on Tuesday. Days spend arriving at your destination and going back from it count as business days; therefore, Thursday and Tuesday will count as business days for her. She can spend all of the weekend in service with no business activity necessary if she applies another rule.
If Melissa “sandwiches in” Saturday and Sunday in between “business days,” the whole weekend will count as business days. That means all she has to do is squeeze in some business meetings with colleagues on those days. Let’s say she meets with colleagues from that area on Friday and Monday. The best part is, even if she’s just honing her business skills with them, that will still count as a business day. That’s because that activity is basically advancing her business thus qualifying.
Moreover, even if that meeting is just a small part of her day, let’s say half-an hour, it will still count. That’s a business day.
Now, because more than 50% of her days spent on travel qualify as business days (100%, in fact in this case), all of her transportation costs for the trip will be deductible (airfare, etc.) Additionally, her “on-the-road” costs (go to this article to understand on-the-road costs) will be deductible too.
Here’s the caveat. Based on the rest of her family coming with her, she’ll have to carve out the portion of her expenses associated with her family. Unless, let’s say her husband is a partner or employee of her business, she would exclude her husband’s portion of those expenses (more on that on the strategy below). You should go to a trusted tax advisor to help you navigate these scenarios and keep you compliant with your travel deductions. Contact us here: https://odysseytaxes.com/contact-tax-preparer/
Hiring Your Husband or Wife To Make Their Travel Expenses Deductible
As mentioned in the previous example, you can’t deduct the travel for all persons in your trip willy-nilly. You usually can only deduct the portion associated with you as the business owner. You are conducting the business activities and therefore driving any of the potential deductions thereof. If however, your spouse were an employee of your business, and there is a business purpose for her travel, voilà.
Let’s see how this would play out. On the transportation side, let’s say it was $300 per each on your round-trip flight. If your spouse did not apply to the rules above, you would only be able to deduct your $300. On the other hand you would get a $600 deduction for that transportation cost (assuming you otherwise meet 100% transportation deduction).
When it comes to your on-the-road expenses, let’s say the hotel was $150/night for both of you and $110 if it was just one person. Let’s say the rental car was $40/day for your 4 day trip.
That would mean, if your spouse did not apply to the rules, a $110 deduction on the hotel and the full $160 on the rental. The rental can be deducted in full because it would have costed the same even if only one person booked it. For the hotel, however, only $440 ($110/night) can be deducted since that would’ve been the price for
only one person. With the spouse applying within rules, on the other hand, the hotel deduction comes up to $600.
That would get us a $900 deduction with the spouse as not part of the business/with business activity on trip. While on the flip side following the strategy would get a $1,360 travel deduction.