Insights
Are you planning a vacation this summer? Two-thirds of Americans have at least one leisure trip planned this summer, according to a recent poll by Harris Interactive, a Nielson Company. That's two percentage points higher than last year's poll and six points higher than 2012. AAA expects 2014 to be the busiest travel season since 2000, thanks to economic improvement and pent-up demand.
On the flip side, the Harris poll revealed that business travel is declining. Only 14 percent of respondents have a business trip planned this summer, down three points from last year and nine points from five years ago. Many budget-conscious companies rely less on business travel and more on telephone, video and Internet conferencing these days.
If you're bucking that trend and planning a business trip, consider turning it into a personal getaway this summer. You may be able to save substantial costs compared to a leisure-only trip.
Most companies will pay for an employee's airfare, hotel, rental car and meal expenses. So, solo travelers will find most major costs covered. If the employee chooses to bring along his or her family, incremental costs are generally paid by the employee personally -- or the employee reimburses the company later on.
Example: A family extended Mom's three-day business trip to Orlando into a Disney getaway. The employer paid for mom's ride to the airport ($80), her airfare ($300), three-night's stay at an Orlando hotel within driving distance to the parks ($750) and a car rental for three days ($120). Mom was also able to expense her company's per diem allowance for meals ($25) on the two nights that she wasn't dining with clients. The total was $1,300.
Employees can also use business travel to build up reward points with preferred hotels and airlines. Reward points might be able to be converted to free hotel stays and plane tickets for personal use. Business travelers should select preferred brands and sign up for rewards programs. Points add up quickly and are easy to redeem.
The cost savings may be even more substantial for self-employed people due to business travel tax deductions, but business owners must be careful to follow the rules to ward off the IRS.
Federal tax laws allow self-employed individuals to deduct 100 percent of their transportation costs for business travel within the United States. Transportation expenses include plane tickets, the cost of getting to and from the airport at both ends of the trip, and luggage handling tips. The same rules apply if you travel by car or rail, rather than by air.
The catch > The primary reason for your trip must be business, rather than personal pleasure. If vacation is the primary motivation for your travel, you can't deduct any of your transportation expenses, even though you may conduct substantial business during the trip.
How do you determine if the purpose of a trip is primarily for business or pleasure? There are no concrete rules, but you can claim a trip is mainly for business when your business travel days exceed your personal travel days.
Here's a summary of what counts as business days:
The payoff for all this counting of days comes when you can plan your trips to include more business days than personal days. As long as that basic guideline is met, you can deduct all your transportation costs even though you may spend a good amount of time playing golf and hanging around the pool.
Just remember to keep a log and carefully chronicle all business activities, including the date and amount of time spent on each one. If you get audited, the IRS will want to see proof of what you were doing during any travel you claim was for business. Good records are your best defense.
Can you bring your family? Unless family members are employees of your business, you can't deduct their airfare. But in terms of the hotel bill, you can write off the cost of what you would have paid traveling alone.
Example: You decide to turn your business trip to San Diego into a romantic getaway with your spouse. The hotel charges $250 for a double-room and $220 for a single. You can deduct $220, rather than half of the double rate ($125). To prove your deduction, ask the hotel for a room rate schedule showing single rates for the days you stay.
You may be eligible to use the "Saturday night stay-over rule" to gain even more deductions when you mix pleasure with business travel. Here's how: If staying over on Saturday night reduces the airfare for your business trip, you can deduct the out-of-pocket cost of staying the extra time even though you spend it vacationing. Just make sure the extra cost of the stay-over is less than or equal to your airfare savings.
Example: You leave Thursday morning on a trip to attend business meetings that take up most of that day and Friday morning. Then you stay over the rest of Friday and all day Saturday before returning home late Sunday afternoon. By staying over Saturday night, you reduce the airfare cost from $1,700 to $600 (a savings of $1,100). Your additional out-of-pocket costs for meals and lodging on Friday night, Saturday, and Sunday total only $550 ($350 for the hotel and $200 for meals).
Thanks to the Saturday night stay-over loophole, you can deduct your meals and lodging for all out-of-town days (subject to the 50 percent rule for meals). And you can deduct all your transportation costs, because the trip was primarily for business purposes.
In addition to signing up for hotel and airline reward programs, business owners can sign up for corporate credit cards that accrue reward points that are redeemable for personal travel expenditures.
You can also set up employees' corporate credit cards to accrue reward points into the corporate account or the owner's personal account. Businesses with large mobile sales teams and that purchase equipment using credit cards can build up millions of reward points each year. These reward points may have significant value that is transferable to third parties. In fact, some owners address reward point programs in their estate plans -- or periodically gift points to family members.
Different rules apply if you travel outside the United States, even for part of the trip. Contact the tax professionals at Kruggel Lawton if you have questions about deductible travel expenses.
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