February 24, 2015 | Deductions
As a Maine-based small business owner, you might find yourself having to travel, abroad or within the United States. When traveling abroad, it may be tempting to take a couple of extra days to do some sightseeing.
It’s important to remember that the tax rules for foreign business travel differ from those for domestic trips.
Generally, the rules say that you must separate out business expenses from personal ones. The good news is that you might be able to utilize two loopholes that would allow you to deduct all foreign transportation expenses.
Here are the basics:
The One-Week Rule- can deduct all of your transportation costs, such as airfare and cabs, as long as your business trip lasts one week or less. Even if you spend most of that time vacationing, the deduction is still applicable. This is true even when you actually spend most of your time vacationing. When figuring out if your trip qualifies for the loophole, count the day you return, but not the day you leave.
Remember that you can only deduct daily living expenses for business days, and not for vacation days.
When figuring out what a business day is, there are some pretty wide parameters. Travel days, as well as weekends and holidays count, and you can include intervening weekdays between business days. Also, any day when your presence is physical required for business reasons counts, whether or not you are actually called upon to work. And believe it or not, you can count days that you intend to work but can’t for reasons beyond your control.
These guidelines are rather taxpayer-friendly. However, the main reason for your trip must still be for business. Otherwise, none of your transportation costs are deductible.
The 25-Percent Rule-Obviously, there are times when your business trip must last more than a week. There is another loophole that allows you to deduct 100 percent of your transportation and daily living expenses (50 percent for meals). For this one, you just have to spend less than 25 percent of your total days vacationing. The day of departure and the day of return both count as business days. The parameters for business days mentioned earlier also apply.
Don’t forget, even if your business trip doesn’t qualify for either loophole, as long as the primary reason for your trip is business, the business percentage of your transportation costs are still deductible.
When mixing vacation with your business trip, it’s crucial to record the number of business days and the amount of out-of-pocket expenses allocable to those days. Keep careful track of all your business, and make a copy for your tax file.
Consult with Filler & Associates if you have any questions about business travel deductions.