TAKE A WORKING VACATION - AND A DEDUCTION

The IRS says you can deduct expenses for taking a business trip or attending a business convention. And there’s no reason the trip shouldn’t coincide with your vacation.

Pack a laptop with your bathing suit on your next vacation.

There is no law prohibiting you from combining a business trip, including a job search, with a vacation. And if you do mix and match, don’t forget to keep your receipts. If the purpose of your vacation is to search for a job in a new location, pick up and complete job applications. Don’t forget to make copies for your income tax records.

The Internal Revenue Service concedes that you’re entitled to deduct expenses for taking a business trip, job search, or attending a business convention. While such trips must benefit or advance your career or business to qualify as a tax deduction, there’s no reason why the trip or convention couldn’t coincide with your vacation. Why do you think that most large conventions are held in cities like New York, Las Vegas and Miami?

What’s Involved

Convention and business travel expenses are deductible both to employees and the self-employed. Such expenses would include convention costs, hotels, meals and entertainment, and travel expenses to and from the convention. It also includes transportation costs while you are there. If a business purpose can be established, the expenses of your spouse may also be deductible. The business conventions or seminars must specifically relate to your business or profession. This rule could be called the “resort investment seminar” rule.

While you can deduct seminar and convention costs so long as they relate to your profession or business, the IRS doesn’t allow you to deduct the expenses for attending an investment or financial planning seminar in a resort area — or, say, a cruise ship. Likewise, you can’t deduct the costs of attending an annual meeting of stockholders if you’re a shareholder. These the IRS considers personal business or investment related expenses. Here, we are talking strictly about business, career, or professional travel expenses.

Rules Vary: Domestic vs. Foreign Travel

The deductibility rules differ depending on whether the trip is within or outside the United States, and whether it’s a foreign convention or a cruise convention. Let’s have a look at each.

If your business-vacation trip is within the United States: Your transportation expenses will be deductible only if the trip is primarily for business. If the trip is primarily for pleasure, no transportation expenses can be deducted. This means that you have to establish a primary business motive for making the trip: for example, you’re going to attend a convention in that city, or visit a client or potential client who is based there, or visit a potential employer.

I would recommend that if you’re going to visit a client or employer, you should write to this person and receive in return a letter confirming the planned visit to discuss business matters. That letter validates the business purpose of your trip.

Factoring Your Business Time

The amount of time that you spend on business will be a factor in answering the question of whether the trip was mostly for fun or work. For example, if you spend five days conducting business and three days sightseeing and seeing shows, the trip will be considered primarily for business and all of your transportation will be deductible.

Alternatively, if you conducted business for two days and enjoyed the sites for the remaining six days, the trip would be considered primarily for fun and no transportation expenses would be allowed. It’s important to recognize that travel days count as business days in the “primary” computation.

Even if the trip is mostly personal, any expenses you incur that are mostly business-related — meals, lodging or incidental expenses, for example — can be deducted.

If the trip is outside the United States special allocation rules apply. If you were out of the country for seven days or less, or if less than 25% of your trip was spent enjoying the scenery, you don’t have to follow the special allocation rules. Furthermore, no allocation is required if you had no substantial control over the trip arrangements and if the desire for a vacation was not a major factor in taking the trip.

Alternatively, if the trip was primarily for pleasure, none of the transportation expenses will be deductible. In all other cases, all travel expenses must be allocated between business and personal expenses (with travel days counting as business days).

Let’s say you took a trip from New York to London primarily for business purposes. You were away from home from July 20 through July 29 and spent three days vacationing and seven days conducting business (including two travel days). Suppose your airfare was $500 and your meals and lodging amounted to $75 per day. You could deduct 70% of your transportation expenses (seven out of 10 days) and $75 per day for seven business days, as you were away from home for more than seven days and more than 25% (three out of 10 days) of your time was devoted to business. (Remember that only 50% of your meals would be deductible.)

If your trip is subject to the allocation rules, there is a planning strategy to maximize your tax deduction. When booking your flight, if you can, arrange for a stopover within the United States at the point closest to your destination. That way, the portion of the trip between your home and the stopover point will be fully deductible. You will then only have to allocate the cost of the remainder of the trip.

Foreign Conventions

Further restrictions are imposed on foreign conventions. No deduction will be allowed for expenses attributable to a foreign convention unless it is “reasonable for the convention to be held outside North America.” In other words, you can’t deduct the trip if you can’t show it had to be over there rather than over here. Note here that we’re only talking about conventions. These rules don’t apply to other foreign business meetings. Three factors are considered in determining the reasonableness of the convention location:

While there is no limit on the number of foreign conventions/vacations you can attend and deduct on your taxes, the rules change if you try to do it on cruise ships. Uncle Sam has a hard time understanding how serious conventions are when held aboard luxury cruise liners, unless:

Even then, the maximum deduction is $2,000 per year for each taxpayer and you must attach two written statements to your return. The first statement, signed by you, must include information on how many days that were devoted to scheduled business activities. The other, signed by a representative of the sponsoring organization, must include a schedule of the business activities each day, and the number of hours you were in attendance.

Remember that the key to deducting your vacation as a business expense is prior planning. Make sure that you can substantiate your business purpose for the trip and your expenses. Properly planned trips that combine business with pleasure will allow you to deduct the cost — or at least a portion of your cost — for nearly everything you do.

I have found that perhaps the easiest way to maintain a record to prove you really did work on that trip to Tahiti is to keep a diary or account book of such expenses. After all, if you’re in the 25% bracket for , a $10,000 business and vacation trip would be subsidized by the IRS to the tune of $2,500!