Date: August 11, 2023
A Guide to Deducting Summertime Travel Expenses for Small Business Owners
Summer is here, and with the warm breeze and longer days, many of us are eager to embark on memorable vacations and getaways. If you’re a small business owner, the word vacation may seem like a far-off dream in the distance, but it does not have to be. You’ll be delighted to know that there are ways to make your summertime travel expenses tax-deductible. Yes, you heard that right! By understanding the rules and making smart decisions, you can make the most of your summer adventures while benefiting your business. In this blog, we will walk you through the essential information about legally deducting travel expenses, helping you save money and give yourself a chance to rest and re-energize. So, pack your bags, and let’s dive in!
- Make Business Travel a Priority:
As a small business owner, it’s essential to prioritize your business activities during your travels. To qualify for tax deductions, your trip must have a primary business purpose. Attending industry conferences, client meetings, or exploring new markets all count as valid business activities. Keeping detailed records of your business-related engagements will be crucial when claiming deductions. So, if you know you’ll be going to Hawaii for a family reunion for example, you can do some preparation and find industry conferences, seminars, or potential clients/vendors to meet with while you are there and BAM! You now have a business trip.
- Keep Track of Expenses:
Documenting your travel expenses meticulously is crucial for successful tax deductions. This includes airfare, accommodation, meals, transportation, and any other relevant expenses. Keep receipts and records of each expense, noting the date, amount, and business purpose to substantiate your claims when filing your taxes. We encourage clients to snap a picture on their smart phone of receipts that have the business purpose and client/vendor name right on the receipt itself.
- Understand the 50% Rule:
While most business-related expenses are fully deductible, it’s essential to be aware of the 50% rule that used to apply to both meals and entertainment but has now been updated to exclude entertainment all together. This rule applies to meal expenses during the ordinary course of business. You can only deduct 50% of these meal expenses. While you are traveling however, your meals are 100% deductible, so be sure not to mix these two categories up – track them separately in your books.
- Combining Business and Pleasure:
The idea of combining business with pleasure can be enticing, especially during summer trips. If you plan to extend your stay for personal reasons after completing your business engagements, you can still deduct the portion of expenses that are directly related to your business activities (think flights, accommodations, Ubers, meals, etc.). Remember to maintain a clear distinction between business days and personal days, and only claim deductions for legitimate business expenditures. The rule of thumb to follow is ‘it must be ordinary and necessary in your line of work’.
- Traveling with Family:
If you plan to bring your family along on your business trip, you can still deduct the expenses related to your business activities, just be aware there may be some added complexity with this. Any additional expenses solely for their benefit won’t be deductible. Consider the primary purpose of the trip and ensure that the business-related portion remains the focus for claiming deductions. There are some savvy tax saving strategies that would allow you to still generate 100% deductible business expenses while traveling with family but would require the expert guidance and implementation from a skilled tax strategist. Long story short, you CAN have your cake and eat it too!
- Seek Professional Guidance:
Navigating tax deductions can be complex, and IRS regulations are subject to change, and frequently do. To ensure you maximize your deductions and stay on the right side of the law, consider seeking professional advice from a tax strategist or a certified business advisory consultant who understands the specific needs of small business owners.
As a small business owner, you have the ability to turn your summertime travels into tax-deductible opportunities. By prioritizing business activities, maintaining clear records, and understanding the IRS guidelines, you can make the most of your summer adventures while benefiting your business’s bottom line. If you’re a business owner wishing they could afford to go on vacation regularly, here is your chance. Remember, keeping meticulous records and seeking professional guidance are essential for smooth tax filings and to ensure you take advantage of every allowable deduction without ever having to look over your shoulder. So, go ahead and enjoy your summer travels, knowing that you’re also investing in the success of your business. Safe Travels and happy tax-saving!