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Write Off Your Vacation

Jennifer Openshaw

Just as you ponder this big-ticket expense, your next door neighbor, fresh from finishing her taxes, arrives to brag about how she wrote off part of her Mexico vacation.

How did she do it? Was it legal? It sure would be nice to get at least some financial help with your upcoming trip. But how?

Turns out there are several ways to mix business with pleasure to make at least part of your trip deductible in the IRS' eyes.

Suffice to say, you probably won't get a 14-day Caribbean cruise or a week on Hawaii's Kohala Coast covered. You might have to scale back your ambitions to a few days in New York or New Orleans.

And don't expect to write off the whole thing. But even a partial deduction, if only just for you as family head, can help.

Now, it takes smart planning. Congress has no desire to publicly subsidize your private vacation. But they do recognize where legitimate business, charity or even medical ends are being accomplished. Follow the rules, and you can mix legitimate business with your legitimate vacation to make it work.

As fair warning, the rules can be daunting, and your deductions will vary according to your individual tax situation.

Your trip must have substantial business purpose -- it's advisable that the majority of time be spent on that purpose. For family trips, you can't write off your kids' airfare. But common expenses, like mileage, hotel rooms and rental cars apply.

Click here for the video version of this story from Jennifer Openshaw.

If you're willing to adapt your destination and play by the rules, there are ways to get a legal subsidy. Let's explore.

• Job-search trip: As a current employee, plan a trip to New York, line up a couple of job interviews, and you can write off your travel costs, including shared hotel and taxi costs. There is a catch: As an employee itemizing deductions, the combined total of such "miscellaneous" deductions must exceed 2% of adjusted gross income, but a lot can go into that bucket.

  Keep it legit -- the IRS won't go for a single interview during a week in Hawaii.

• Continuing education: This is big for employees and independent professionals alike. Many professions require keeping up with the trade through continuing-education courses. These courses are in some pretty cool places, and so long as the primary purpose of your visit is to attend the course, it works.

  There are special rules for prorating expenses for international trips and cruises, so a consultation with an accountant and IRS Publication 463 is a good idea.

• Attend a conference or meet a client: Here's a break for the entrepreneur or owner of a side business. Attend a show related to your business, or meet a client, and at least some portion of your trip -- the expenses related to the days spent doing business, if nothing else -- are deductible.
• Medical travel: While health care needs may not mix well with pleasure travel, you can often turn this travel into deductions. If you live in a small town and travel to the big city for corrective laser eye surgery, for example, your expenses and those of a companion are deductible, although mileage deductions at 20 cents per mile for 2007 are lower than the business rate of 48.5 cents per mile.

  More exciting is the growing possibility of "medical tourism" -- surgery and other procedures done outside the U.S. in places like Mexico, Costa Rica, Thailand or India. A new portal, PlanetHospital, shows the way.

  Total medical expenses, including travel, must total more than 7.5% of adjusted gross income. But procedure cost plus travel cost will likely break the barrier.

• Charitable trip: Travel to the Mississippi Gulf Coast to build for Habitat for Humanity, or to Lake Tahoe to work on the Tahoe Rim Trail or as a volunteer, say, for your church. You can deduct direct travel expenses. You must itemize, and the mileage deduction drops to 14 cents per mile.
• Own a rental or vacation home: If you have a rental property you use fewer than 14 days a year, it is considered an investment, and you can deduct a trip to take care of business, such as meeting with tenants and agents or working on the property yourself.

Just like the trip itself, figuring out what is and what isn't deductible will take some planning. And you'll have to take good notes in case you have to show the IRS what you did and why when you return.

I'm a big fan of helping you keep your hard-earned dollars, and I'm also a big fan of nice vacations. So I love it when these two pleasures come together.