Tax Law and Business Organization Strategy

Deducting Business Travel that Involves some Pleasure

Some reminders about getting a travel bargain by attaching a vacation to an out-of-town business trip: If set up right, you may get free vacation airfare or mileage, and perhaps other savings.

Trips undertaken primarily for business A taxpayer who mixes a bit of pleasure with business while away from home may still deduct all of the round-trip transportation costs as long as the trip was undertaken primarily for business reasons. The cost of lodging plus 50% of meals while on business status is deductible. If you tack on a day or few for a little personal pleasure time, you still get a deduction for the entire transportation cost as well as lodging and 50% of meals for the portion of the trip that is business. [You can’t deduct anything for the lodging and meals for the extra pleasure days.] Because you still get to deduct 100% of the transportation cost, you do get some subsidy for the cost of your min-vacation.

Saturday night stayovers Even if an employee's out-of-town business duties end on Friday, his or her employer may ask the employee to stay over a Saturday night to take advantage of a low-priced fare if the airfare savings exceeds the costs of the weekend’s meals and lodging. The employee doesn't have to pay tax on the reimbursement for his Saturday meal and lodging expenses. And, the IRS, under a “common sense test,” has ruled that payments to the employee for the Saturday stay were deductible if a “hardheaded business person would have incurred such expenses under like circumstances.”

Weekends Similarly, a business trip may straddle a weekend. For example, you may have to attend business meetings on Thursday, Friday, and Monday. If you are too far away to travel home and then come back (or the trip back and forth would cost more than staying put), staying the weekend relaxing at the out-of-town location is part of the business trip.

Weekend travel home A business traveler on an extended out-of-town assignment may decide to fly home for a weekend to be with the family. The cost of the weekend trip home is deductible up to the amount the traveler would have spent on meals and lodging at the out-of-town location. For this rule to apply the traveler must check out of the out-of-town hotel before leaving for the weekend trip home, and then re-register. If, instead, the traveler retains the hotel room, the deduction for the weekend trip home (i.e., the air fare) is limited to what the traveler would have spent on meals during the weekend at the out-of-town location.

When spouse comes The expenses of a spouse or other companion accompanying a traveler aren't themselves deductible unless (1) the spouse or other companion is an employee of the taxpayer and travels for a bona fide business purpose, and (2) the expenses would otherwise be deductible by the spouse or other companion. However, the business traveler may still deduct the cost that would have been incurred in single travel. So, for example, if the cost of lodging is the same whether the room has one occupant or two, the entire cost of the room may be deducted, even if it is shared with a companion who is not a business traveler.

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