Ok, who would like to find themselves in a tropical island paradise, sitting in a hammock on a warm sandy beach, with muscular, tan men in little swim shorts bringing you fresh piña coladas all afternoon? Everyone, right?
Tax write-offs for self-employed individuals are very important since this group of people generally gets hit pretty hard on the tax-front. If the above scene, or the vacation of your own dreams, sounds like heaven that would break your bank, now’s the time to get creative and learn how to make some business travel expenses and enjoy your summer at the same time.
How to write off your vacations and reduce your taxes
Use the trip for business purposes
The trip has to be mainly for business purposes, so to qualify for the write-offs there are some things you must do before you go sleep in the sand. The trip must obviously be longer than one workday, which then you may write off all travel expenses 100%, including laundry, car rental, dry cleaning (anything “ordinary and reasonable”), and 50% of food costs. Keep track of anything that adds up to over $75.
Always document everything you do and pay attention to what you know is “ordinary and reasonable” for your business type. If you rent out a Ritz penthouse or Ferrari, unless this is common in your industry, the IRS will flag you down!
Set up appointments before you leave
The IRS expects a “prior set business purpose” for your trip, so make sure to set up at least one appointment before you put on your grass skirt.
Schedule your business time wisely
The IRS counts holidays, weekends, and travel days as “business days”, so for example, if you fly out on a Thursday, have a meeting on Friday and Monday, you can write off Thursday-Monday, and enjoy your weekend wherever you landed.
There are stricter rules for traveling outside the US, for example, you may only be away for a maximum of seven days. You can find these rules on the IRS website.
Buy an RV or boat
No family expenses can be deducted on these trips, but one way you might enjoy some away-time with your family is by buying an RV or boat. If you take out a loan to use one of these for personal use, it might qualify as a second home for federal income taxes if it has a place to sleep, a kitchen, and a bathroom. If this is the case, you might be able to write off the loan interest as mortgage interest on your personal tax return (up to $1 million of mortgage debt).
If you haven’t been traveling and claiming those travel expenses, now’s the time to restructure how you think of vacationing. Create more business for your small business, make some extra money, claim some business trip expenses, and slip in a little relaxation in a place you’ve always wanted to travel.
Are you running out of time to handle your accounting and taxes for your small business? Make D&M Accounting part of your team and we’ll make sure your taxes are ready to go, with all the deductions you should be taking advantage of!
D&M also offers payroll processing, business accounting services, and a variety of other helpful resources for businesses to stay organized and informed.