Mixing Business with Pleasure: Navigating Personal Days on business Trip (Part 1)
Mixing Business with Pleasure: Navigating Personal Days on a Business Trip (Part 1)
Can I take a few personal days attached to my business trip and still write off the whole trip for
business? If I go on vacation, can I write off part of it for business if I talk business while I’m there? These
are just two of many questions we get all the time and intend to answer in this two-part series related to
travel.
Blending Business with Leisure: What You Need to Know
I’m writing today’s post on a flight to Philadelphia, on my way to a business conference…in New Jersey.
Now those with travel experience know Philly is an alternative to going in and out of Newark. While
further away, it FEELS like less of a hassle than dealing with traffic close to EWR. But I have a different
motive – I GET TO SEE MY KIDDO who moved outside of Philly earlier this year. While not my favorite
town (having grown up a Dallas Cowboys fan), I am SUPER-PUMPED to visit the Liberty Bell and the steps
where Sylvester Stallone was filmed training in Rocky (the movie). And, ever the bean-counter, it
occurred to me this would be a very relevant topic to post.
Many professionals try to mix a bit of pleasure into their business travel when they can. Who doesn't
want to extend a trip to enjoy some sightseeing or quality time with friends and family while in the
area? However, deducting expenses for the personal portions of a business trip requires care and
planning.
The IRS follows strict rules to separate business and personal costs and aggressively audits questionable
deductions. In this article, we'll cover key factors for handling personal activities during a business trip to
maximize your deductions while avoiding issues or penalties down the road.
The main criteria is that the primary purpose of the trip must be for business. Any personal time should
be incidental to the business activities. We'll get into more specifics shortly but first understand this
general principle - claiming deductions gets far tougher when personal enjoyment starts edging out
business needs as the dominant purpose of the trip.
Tread carefully when blending business and pleasure to protect yourself from problems. Consult a tax
pro like us if you have any questions! Now let's get into the details...
Passing the Primary Purpose Test
First…the boring stuff…
The IRS requires that for any expenses on a mixed business and personal trip to be deductible, the
primary purpose of the trip must be business-related. This means that the main activities you engage in
during the travel should be aimed at accomplishing business objectives.
Any personal activities must be incidental to the business purpose. If the IRS determines the real reason
you took the trip was for personal interests and the business activities were just incidental, they will
disallow your deductions. Looks like I can still see the Liberty Bell, no problem!
Some key factors the IRS considers in judging whether business or personal motives were dominant:
Your occupation and normal business activities - Were the activities consistent with your regular
business operations, meetings, conferences, etc.?Amount of time spent on business vs. personal activities - Significant personal time casts doubt.
Direct ties of each activity to your business interests - or lack thereof.
Notes, reports, and follow-ups from business activities conducted.
Company reimbursement - Paying out of pocket raises questions.
To support your case, document the business activities and time spent on them thoroughly. Consult
your tax advisor if unsure whether your reasons for a trip will pass the primary purpose test.
But the main takeaway is this - the bulk of your time and activities should serve clear business aims for
deductions to be allowed. Personal enjoyment cannot be the headline of your travels.
Strategically Allocating Your Expenses
Once you've established business as the primary purpose of a trip, the next step is properly allocating
your expenses between deductible business costs and non-deductible personal costs. Don’t gloss over
this section – failure to adhere to these principles can certainly cost you some if not all the deductions
in an audit.
Travel Expenses:
Airfare - Prorate based on days or miles for business vs. personal.
Rental cars - Track mileage for business and personal use.
Taxis/trains - Directly for business are deductible. Commuting to entertainment is not.
Lodging:
Hotel/motel costs for the business portion of the trip are 100% deductible.
An extended stay for personal reasons is not deductible for those extra days.
Meals:
Business-related meals are 50% deductible. Document how you determined the business portion.
Meals during personal portions of the trip or entertainment are not deductible.
Allocate per diems or meal receipts based on business days/hours.
Deduct only business expenses using allocation methods that reasonably separate personal costs. Pro-
rating travel, hotel stays, and certain other expenses are acceptable to the IRS.
Maintain thorough records, and have your tax professional review your allocations if unsure. With the
proper documentation and audit trail, you can maximize deductions for business trips with some
personal time mixed in.
Critical Documentation: Safeguarding Your Deduction
Meticulous recordkeeping and documentation is crucial to justify your business trip deductions to the
IRS and pass an audit. Create a paper trail that clearly supports your expense allocations. Key documents
to maintain: just like I covered in a recent post about maintaining a mileage log, documentation is
critical…contemporaneous record-keeping is a must when it comes to audit success.
Detailed travel itinerary showing the business activities and personal/leisure activities conducted each
day.Receipts for all lodging, rental cars, airfare, public transportation, and other travel expenses. Note
which are 100% business or split.Log of miles driven for business purposes.
Meal receipts and basis for allocating between business and personal meals.
Any business reports, meeting notes, and follow-ups from business activities on the trip.
Proof of business purpose such as conference agenda, meeting invites, etc.
Company reimbursement documentation if not paying 100% out of pocket.
Neatly organize these documents in case of an audit. Double-check that your business and personal
expenses are clearly differentiated. Do not discard anything that could help support your tax
deductions!
Proper documentation also helps remind you down the road why expenses were allocated as business
or personal so you can accurately report them. Sloppy recordkeeping is asking for trouble.
Key Takeaways: Best Practices for Blending Business with Leisure While Maximizing Your Deduction
To recap key points for handling personal time on a business trip while maintaining compliance:
Ensure the primary trip purpose passes the business test or all deductions will be tough. Do not let
personal time dominates.Allocate expenses carefully between business and personal costs using reasonable pro-rating methods.
Do not claim 100% unless solely for business.Maintain meticulous supporting documentation and receipts to avoid issues later.
Consult your tax professional if uncertain about excluding personal costs - better safe than sorry.
When possible, keep business trips and vacations distinctly separate. Easier to comply and avoid
trouble.If audited, have your itinerary, business purpose, and expense allocation methodology clear.
Do not push deductions too far. Frivolous claims on entertainment or sightseeing can trigger extra IRS
scrutiny.
With preparation and diligence, you can successfully deduct appropriate business expenses from trips
that mix in some personal enjoyment. But caution is required to stay on the right side of IRS rules.
The Bottom Line
In navigating the crossroads of business and leisure travel, maintaining a clear focus on compliance is
paramount. Balancing the joy of personal exploration with the rigors of professional obligations is a
nuanced journey, fraught with fiscal intricacies.
The IRS’s watchful eye necessitates a meticulous approach, where every deduction claimed is
substantiated, and every leisure activity is carefully weighed against business objectives.
As you embark on mixed-purpose travels, let the principles outlined in this guide be your compass, and
remember, when in doubt, seeking professional advice is not just a safeguard—it’s a cornerstone for
successful, compliant travel. Reach out to us, and let’s ensure your journeys, whether for business or
pleasure, are maximally rewarding, and seamlessly compliant.
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About Our Firm
Tim Thompson CPA PLLC is located in Dallas, Texas and is an expert in all areas of Texas taxes. We can help with individual or business taxes, tax resolution, tax preparation, and tax planning services.