If you are a small business owner, there are many tax deductions you can take to write off your business-related expenses. However, as a small business owner, you may not have the financial means to take your family on that much-needed, often-promised summer vacation. When funds are tight, small business owners usually keep burning the midnight oil in hopes they will scrape up enough cash to afford some fun. But if you learn how to mix business with pleasure, that vacation may not be as hard to come by as you may think.
When you consider taking a business-related trip with the family in tow there are some precautions you must take to ensure you are doing things in line with the IRS rules. Here are some of the most important pieces of the puzzle you need to understand to take your trip and avoid an audit by the Internal Revenue Service:
In order to get a full tax deduction for the travel part of your trip, you must be traveling primarily for business and be going to a destination in the United States. If you plan to travel internationally, the trip must be 75% business in order for you to get the deduction for your airline fare. Otherwise you’ll have to work out a percentage and only deduct the amount of airline fees based on the amount of business involved.
When you are on a business trip, meals for you and any business associates you pick up the tab for are deductible but only for half the amount you spend.
The only way to deduct the expenses of your entire family is if they are employed by your business. Since proving your kids are legitimate employees isn’t going to fly with the IRS, you need to get creative in your planning. Hotel costs where everyone is staying in the same room is deductible as is the rental car you use to transport the family around for your vacation. Not all family expenses will be covered by your business deductions and you need to be careful about what you try to get covered under business travel expenses.
When you travel for business and combine it with a family getaway, you don’t necessarily have to get the job done and then leave. You can stay longer and still reap some deductible expenses.
If you are traveling for a conference or business-related event, don’t forget to claim the cost of the conference, training, or seminar you are attending. You can also count the other business expenses including taxi fees, cost of Internet fees, marketing expenses, and cell phone charges.
The most important factor in business-related travel expenses is your ability to track all of your expenses in detail. This means you need to keep all receipts, schedules, conference details, and anything that proves you were conducting business. The IRS has battled against abuse of business tax deductions for many years and are keen on ensuring what you are deducting is not fraudulent. They will be quick to call you out on expenses that are obvious over and above what business travel requires. You need to plan to keep those documents on file for several years.
Don’t plan to stay at the priciest hotel or use limo transportation to your conference. Keep things within reason and you should be able to avoid an audit. Bring a sealable file folder where you consistently store all of your related documentation. It can help to sort through the receipts and paperwork each night and notate the purpose of the expense. After time on the road with your family, it will be easy to forget what’s what when you return home.
While not all of your family members will be eligible for tax deductible expenses, you can still save quite a bit of cash and still enjoy a trip with your family. If your business dealings are successful, you have the added peace of mind that business profits may be on the rise and your trip has been successful both professionally and personally.
Because the IRS is becoming stricter with their policies, it may be in your best interest to consult with your CPA to go over which expenses are, in fact tax deductible and which are not. If you continually prepare your small business tax information throughout the year, your information at tax time will be more accurate and much easier to coordinate and you’ll be more likely to bypass the dreaded IRS audit.