The year 2009 will go down as a poor one for the hospitality industry because Americans are finding it hard to afford vacations. With the high cost of transportation, meals and all the other activities of a typical trip - not to mention some anxiety about getting a paycheck next month - it's no wonder middle America is skittish about spending money on travel.
What if you could get Uncle Sam to help pay for that convention in Las Vegas or trade show in San Francisco? Do you think you might be more willing to part with some of your hard-earned money? Suppose you hadn't planned on a vacation but just found out about a great sales seminar in Tahoe next month? Wouldn't it be nice if you could add a few days and have a getaway with your significant other and/or kids? This article will show how to deduct part of that trip and let the U.S. Government foot some of your bill.
Even though businesses have put a curb on some travel, industry associations, companies and other groups still need to sponsor trade shows, conventions and business meetings to educate and attract new customers. There is no law that says you can't go to one of these meetings and deduct your expenses if the meeting directly relates to your business. Once at your destination, there is no reason you cannot extend your stay to do some sightseeing - but you have to be careful.
First, you have to be self-employed or a small business owner to make the deduction worthwhile. It's basically a numbers game. For the self-employed person or small business owner, every cent that qualifies for a deduction reduces taxable income. An employee, even if he or she is required to pay for the trip as a business expense, can deduct only the amount above 2% of adjusted gross income as a miscellaneous itemized deduction.
Second, the trip must be primarily for business. It is primarily for business if the number of days spent for that purpose is greater than the number of personal days. The good news: travel days are considered business days. Let's say you are a dog groomer and plan to go to Las Vegas for the four-day "Canines in Style 2009" convention. You fly in on Sunday night, go to all the grooming meetings scheduled for Monday through Thursday, and then spend Friday and Saturday seeing the town before returning home on Sunday. You have been out of town for eight days. Both Sundays were travel days and you spent four days in business meetings, leaving two days for pleasure. Even if you had a great time when there were no meetings, as far as the IRS is concerned your trip was primarily for business.
What does the "primarily for business" label get you? First, you can deduct all of your transportation expenses even though part of the trip was for pleasure. Expenses for meals and lodging, rental cars or cab fares and other normal costs are fully deductible for the business days; however, meals are still subject to the 50% limit.
If you bring a friend or family member along, remember that their expenses are not deductible. But that's no problem. There's nothing preventing you from sharing your room with the family and, while you're attending business meetings, the family can have some fun. Let's look at how all of this would benefit you.
Let's assume you and your spouse and child go to Orlando for a fun-filled vacation at Disney's Grand Floridian. You spend $750 per person on airfare, rent a minivan for $350, and blow $1,500 on food plus $1,000 on the hotel for five nights. The convention you attend is a three-day affair. You fly in the day before it starts and leave on Friday. The total cost for your five-night vacation is $5,100. The two travel days, plus the three days spent in meetings, total five business days and one personal day. You can deduct the following:
|Your meals for the business days (5 divided by 6 x $600 - assuming you eat more than the rest)
|Auto rental (5 divided by 6 x $350)
|Room rental (4 divided by 5 x $1,000)
Assuming you are self-employed with a combined state and federal tax rate of 30%, you would reduce your tax bill by 45.3% - or $1,061. That should be enough to pay for a few trips to the Magic Kingdom!
Driving instead of flying makes the results even better. Let's assume the travel is 1,300 miles round-trip. At the current IRS standard mileage rate, your deduction would be $715, which should exceed the cost of the gasoline (less than $200 if your car gets 20 miles per gallon and gas is $2.75 per gallon). You would also save $2,250 in airfare and $350 in a car rental. And all of this savings is before we even discuss mileage while in Orlando. Now, the cost of the trip is about $1,600 plus whatever you spend on the theme parks. Not too bad - especially if your child travels well.
Not all business travel scenarios are as easy as the one above. You have to plan ahead to make the best use of your dollars. Still, for the cash-strapped family, this might be one way to take a vacation and promote family harmony. Before you do anything, though, take the time to give us a call and let's make sure you get the deductions you deserve.
Happy Independence Day!