Non-Deductible Trip vs Deductible Business Trip

Summer is in full swing and with that comes vacation season.  For that reason, I wanted to take a minute to share some requirements on how to turn your next trip from a non-deductible personal trip into a deductible business trip.

The first step is to make sure that you are leaving your tax home.  This will come down to leaving the area of your residence and the area in which you work.  There isn’t a clear cut milage limit decided by the IRS on this, but the trip should include enough distance/travel that you would need to stay somewhere to rest or sleep before returning (staying at a hotel in town or in the same metro area is not leaving your tax area).

The next step is to make sure that a substantial amount of the time on your trip is spent conducting bona fide business.  Travel days do not count as personal, and the best defense is to have at least 4 hours per day conducting business.  Outside of seminars (online or in person) other opportunities include visiting and meeting with colleagues, meeting vendors, etc.  If these requirements are met, the airfare, hotel, car rental, etc., can all be run through the practice and deducted as a business expense.  Things get tricky when personal side trips are added on and in some instances those expenses could be non-deductible.

If other employees of the practice come on the trip as well, each employee has the same requirement that most of their time is spent on bona fide business.  So, a spouse on payroll would also need to have most of their time conducting business for the practice to deduct their portion of the airfare.  If the other employee does not meet the requirement but is staying in the same hotel room as you, you still get to deduct the hotel room (it was needed for your business activity), but their airfare would be non-deductible.

Another requirement for your trip to qualify as a business trip and be deductible is that all expenses must be ordinary and necessary.  For example, if you are traveling to a 3-day conference out of town you would have to get there, so airfare on a commercial airline would be ordinary and necessary.  However, the IRS might argue that the chartering of a private jet goes beyond ordinary and necessary for a dental practice and they might try to dispute the trip under that situation.

Lastly, we recommend documenting all expenses and substantiating them with a log/itinerary that shows the business purpose for each business activity, who was present, and where the activity was held.  As with most things tax related, records are key and are an important part of any defense should the IRS ever investigate anything.

These actions do not guarantee a deduction as there are still other facts and circumstances that can go into this, but these steps are crucial to making an argument in the case that it is reviewed by the taxing authorities.  If you have any specific questions regarding the planning of your next trip, please reach out to your client manager.

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