How to turn your fun trips into tax cuts
How would you like to deduct every dime you spend on vacation this year? Tim did. Legally. Want to know how?
Tim
wanted to take a two-week trip around the US. He learned that every
thing is much cheaper when you can legitimately deduct it.
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1. Make all your business appointments before you leave for your trip.
Most
people believe that they can go on vacation and simply hand out their
business cards in order to make the trip deductible. Wrong.
You
must have at least one business appointment before you leave in order
to establish the "prior set business purpose" required by the IRS.
The
first thing that Tim needs to do is set up appointments in various
cities such as Chicago, Sacramento, and Phoenix before he leaves. The
best way to establish this is to put advertisements in the newspaper,
looking for distributors. He could then interview those who respond when
he gets to the business destination.
Example:
Tim
wants to vacation in Hawaii. If he places some advertisements for
distributors, or contacts some of his downline to perform a
presentation, the IRS would accept his trip for business.
Tip:
It
would be vital for Tim to document this business purpose by keeping a
copy of the advertisement and all correspondence along with noting what
appointments he will have in his diary.
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2. Make It All "Business Travel."
In
order to deduct all on-the-road business expenses, you must be
traveling on business. By definition, you are on business travel
whenever you are sleeping overnight in a strange bed - conducting
business, that is!
Example:
Tim
wanted to go to a regional meeting in Boston, which is only a one-hour
drive from his home. If he were to sleep in the hotel where the meeting
will be held (in order to avoid possible automobile and traffic
problems), he will be deemed to be on business travel.
Tip:
Remember:
You don't need to live far away to be on business travel. If you have a
good reason for sleeping at your destination, you could live a couple
of miles away and still be on travel status.
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3. Make sure that you deduct all of your on-the-road -expenses for each day you're away.
For
every day you are on business travel, you can deduct 100% of lodging,
tips, shoe-shines, laundry and dry cleaning, car rentals, and 50% of
your food. Tim spends three days meeting with potential distributors. If
he spends $50 a day for food, he can deduct 50% of this amount, or $25.
According
to the IRS, no receipts are required for any travel expense under $75
per expense. The only exception would be for lodging.
Example:
If
Tim pays $6 for drinks an the plane, $6.95 for breakfast, $12.00 for
lunch, $50 for dinner, he does not need receipts for anything since each
item was under $75.
Tip:
You
would, however, need to document these items in you diary. A good tax
diary is essential in order to audit-proof your records.
Example:
If,
however, Tim stays in the Bate Motel and spends $22 on lodging, will he
need a receipt? The answer is yes. You need receipts for all paid
lodging.
Tip:
Not only are
your on-the-road expenses deductible from your trip, but also all
laundry and dry-cleaning costs for clothes worn on the trip. Thus, your
first dry cleaning bill that you incur when you get home will be fully
deductible. Make sure that you keep the dry cleaning receipt and have
your clothing dry cleaned within a day or two of getting home.
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4. Sandwich weekends between business days.
Interestingly,
the IRS notes that if you have a business day on Friday and another one
on Monday, you can deduct all on-the-road expenses during the weekend.
Example:
Tim
makes business appointments in Florida on Friday and one on the
following Monday. Even though he as no business on Saturday and Sunday
(other than monkey business), he may deduct on-the-road business
expenses incurred during the weekend.
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5.Make the majority of your trip days business days.
The
IRS says that you can deduct transportation expenses if business was
the primary purpose of the trip. The majority of the days in the trip
must be for business activities. Otherwise, you cannot make any
transportation deductions. This is an all-or-nothing proposition.
Example:
Tim
spends six days in San Diego. He leaves early on Thursday morning. He
had a seminar on Friday and meets with distributors on Monday and flies
home on Tuesday, taking the last flight of the day home after playing a
complete round of golf. How many days are considered business days?
All
of them. (Nice work, Timmy!) Thursday is a business day, since it
includes traveling - even if the rest of the day is spent at the beach.
Friday is a business day because he had a seminar. Monday is a business
day because he met with prospects and distributors in pre-arranged
appointments. Saturday and Sunday are sandwiched between business days,
so they count. Tuesday is a travel day. So every day was deductible.
Since
Tim accrued six business days, he could spend another five days having
fun and still deduct all his transportation to San Diego. The reason is
that the majority of the days were business days (six out of eleven).
However, he can only deduct six days worth of lodging, dry cleaning,
shoe shines, and tips. The important point is that Tim would be spending
money on lodging, airfare, and food, but now most of his expenses will
become deductible.
With proper planning,
you can deduct most of your vacations if you combine them with
business. That can make your life a lot less taxing!