When you're self-employed, the lines between work time and play time often blur. But while this can wreak havoc with your personal life most of the year, if you can successfully manage the two on a summer trip, the Internal Revenue Service will cut you a little slack.
That's not to say that you and your lover can deduct your Parisian holiday. The IRS is on the lookout for taxpayers who might try to classify a personal trip as a business expense. But the IRS is generous in its definitions, and, with a little advance planning, you can arrange a trip that takes advantage of the tax breaks given for business travel.
First off, to be deductible, the primary reason for your trip must be for business. (And that's an existing business -- expenses you incur on a trip required to start a new business aren't deductible.) The IRS determines if the trip was primarily for business on a case-by-case basis. But to be safe, the majority of your days must be spent on business.
The IRS has some generous definitions of what constitutes a "business" day, though. Travel days count as business days, as do weekends and holidays, providing that they fall between business days. You can also count standby days, during which you're required to be on call, whether or not you actually go into work. And if you intend to work but can't for circumstances out of your control (say, a client cancels your appointment), that counts as a workday, too.
In addition, if extending your stay substantially reduces your airfare (which is often the case with a Saturday night stay-over) and enables you to save money on your trip, the IRS has another deal to offer: You can deduct all of your transportation and out-of-pocket expenses for those extra days, even if you don't work at all. Essentially, the IRS is saying that because staying the extra time saves your business money, the extra days count as business days.
If the primary reason for your trip is business, the IRS allows you to deduct 100% of your transportation costs for travel within the U.S. That includes getting to and from the airport (or train station), your airfare (or train fare), and cabs to and from your hotel to your business meetings. If you opt to rent a car, the cost of the car is fully deductible, as long as it's used for business travel. Of course, hotel costs are deductible as well, including the tips you leave for housekeeping or give the porters to carry your bags. You can also deduct 50% of your business meals.
You can only deduct travel expenses if they are "ordinary and necessary." In other words, nothing too extravagant given the circumstances. The IRS gives you a good deal of latitude here, too. Your expenses won't be denied simply because you flew first-class or dined in four-star restaurants.
All the expenses you incur when traveling are deductible as well. Just save those receipts, and you can deduct cleaning and laundry expenses, computer rental fees, telephone or fax expenses.
Only expenses that have to do with you and your business are deductible, though. But while you can't deduct the cost of your spouse's airfare (unless he or she is employed by your business and traveling for legitimate business reasons), the hotel and some meal and transportation costs are still deductible.
A few caveats apply to business travel outside the U.S. Your travel expenses of getting to and from your business destination are still deductible. However, if you combine a little pleasure with your business while abroad, you may have to allocate your travel expenses in proportion to the number of days you spent on nonbusiness activities during your trip, unless you meet one of the following conditions:
1. You were outside the U.S. for seven days or less (not counting the day you leave, but including the day you return to the U.S.), combining business and personal activities.
2. You were outside the U.S. for more than a week, but spent less than 25% of the total time you were in a foreign country on personal activities (counting both the day your trip began and the day it ended).
3. You can establish that a personal vacation was not a major consideration.
If you meet one or more of these conditions, your trip is considered entirely conducted for business, and you can deduct all of your business-related travel expenses. If you don't meet at least one of these conditions and you spent 25% or more of your time on personal activities, you'll have to allocate your travel expenses of getting to and from your destination between your business and personal activities to determine your deductible amount.