So before you start booking a “business” vacation in the Bahamas, there are five things you should know.
You Can Only Deduct 50% of Meal Expenses for Business Travel
You can use a per diem rate or actual costs, but it’s still usually only a 50% deduction. Always keep your receipts and use precise figures to avoid problems if audited.
You Can Only Deduct 50% of Entertainment Expenses
If you are entertaining clients or customers you can deduct these costs, but only 50% of total costs. In addition to keeping accurate records, be sure to provide detailed records about the time and place of each meeting, the reasons for the entertainment, the business discussions that took place and who was there.
When You Talk Business, You Must Really Talk Business
The IRS states that any business expenses in the arena of food or entertainment must be “ordinary and necessary”, meaning (A) the main purpose of the meal or event is business; or (B) a substantial business discussion takes place at the event, thereby earning you an associated business expense.
You Cannot Count Your Own Leisure Activity
While on a Business Trip as a Business Expense
This means you cannot count your own entertainment or leisure meals, even if you are traveling on business. So pull out your personal credit card when appropriate to sort these expenses out. And remember, bringing your family along with you for a mini-vacation while you work is not a business expense, either.
Count Only Direct Business Expenses, Not Everything
If you are taking a business trip for specific business reasons then you can count practically all of your expenses, unless it’s a purely personal activity. However, if you are taking a personal trip that involves some business, then you can only count expenses related to your business.
Lastly, remember that all business expenses should be helpful and appropriate to your business goals (namely that you expected some income to develop from this outing) and “common and accepted in your field of business”.
It can be difficult to understand where the “fine line” is, s for more information, check with a tax professional or review the IRS Travel & Entertainment Expense booklet.