I just got back from a week in Amsterdam. Believe it or not,
it was a business trip and I was able to take almost $4,000 in deductions
though I actually spent less than that on the trip.
Legal? Yes.
Ethical? Yes.
Sensible? Yes.
Did I get to have any fun, see the sights, ogle the tulips,
enjoy the cafes? Yes.
I once joked with my-sister-the-accountant that every time I
take a dollar out of my wallet I pause and ask myself "is there any way
this can be a business deduction?". She laughed and said "now
you're thinking like a business person!" As self-employed people who tend
not to make a lot of money, we need to be conscious of ways to keep as much of
that money in our pockets as we can. Since taxes are a major expense, we need
to be conscious of keeping that expense within reason.
Before I go any further, let me be clear about something: I
do not resent paying taxes. It does not make me angry. I don't rail at the
government for "taking" my money. I consider my taxes a totally
appropriate way to contribute to the running of this country and I consider
paying them honestly to be a very patriotic act, regardless of the party in
power.
Having said that, I still don't want to pay more than I have
to!
So, when and how can a vacation also be a business trip? The
key is a word I've heard often as a massage therapist -- intent.
Believe it or not, the IRS does take into account what your
primary intent was when you planned your trip. Was your primary
or initial intent business or pleasure? And how do you prove that to
them if they ask?
In my case:
I initially planned this trip to be able to meet
up with my Australian co-author Ben Risby-Jones. He was going to Amsterdam to
teach a class. Amsterdam is easier to get to than Australia.
In addition,
several of the reviewers of our book were going to be in Amsterdam for that
class and I wanted to meet them in person.
Finally, I provide editorial support
to Kitty Southworth, who is the US representative for a product Ben sells. Our
European counterparts were also going to be at this class and we both wanted to
meet them.
Did I also want to see tulips and windmills and eat cheese
and see the Dutch Masters? You bet! But
first I took care of the parts
of the trip related to business.
- I emailed Ben to confirm the date and location
of the class (and the emails are my "documentation" if I'm ever
audited).
- I also confirmed his travel plans and made arrangements to meet and
talk about our book while I was in Amsterdam (again, emails as documentation).
And only then did I plan the "fun" part of the
trip: researching sites to visit and train schedules for day trips, etc.
etc.
Because, yes, the IRS can check to
see what I did first -- make arrangements for a day trip to see the tulips or make
arrangements to work with Ben.
But $4,000? And that's more than I actually spent??
When you travel, you have two options for how you account
for your expenses:
Per diem rates are set by either the
IRS (for domestic travel) or by the State Department (for international
travel). A per diem is a flat rate you can claim for each day of business if
you'd rather do that than take actual expenses. And yes, it is legal to choose
the higher of the two! You just have to use a single method for a single trip
(you can't take the per diem one day and the actual expenses the next day).
I looked the rates up online and the per diem for Amsterdam
is currently $424 per day. And that is much more than I actually spent so I
opted for the per diem.
I couldn't take per diems for every day of the trip. But I
could take it for the days that I travelled (since the primary purpose of the
trip was business) and for each day I engaged in business, which in my case
meant each day I met with Ben or my reviewers or my European counterparts and
talked about business. That was every day but one on this trip.
Total per diems for this trip: $3,816
Now, before I did my happy dance about this, I confirmed
with my accountant that I was doing this correctly. I wanted to be sure I was
reading the per diem charts correctly and applying them correctly. Never take my word as the last word on accounting issues! Never.
In 2002 I decided to go to the AMTA conference in Portland
Oregon. I've often fantasized about driving across the US and back. Since we
had a relatively new car, I decided this was my chance. I worked out that I
could afford to spend a month driving out to Portland and back (which, it turns
out, was not a luxury -- it's a big damned country and I was driving by myself.
I needed the whole month!). Given that my intent was to attend a professional conference and
that my route to and from was within reason (even when I managed to squeeze in
some visits with friends along the way), I was able to take a months' worth of
travel expenses as a business deduction, even though the conference was only 4
days long.
If I had known about per diems then I would have had an even
bigger deduction!
There are so many decisions we make every day that
affect our business and our tax responsibility.
We need to be thinking about it every day, not just April 15. You
weren't born knowing all of this and the odds are good you didn't get a solid
grounding in it in school. It's worth your time and effort (not to mention your
money) to educate yourself as a business owner (because your accountant is only
as good as the information you give them!).
And next time you're pondering a vacation, first ponder
whether there's a way to also make it a business trip. Visit a local massage
school. Take a massage course. Get a massage in a setting or modality that is
new to you. (And remember to schedule those first.) You may not be able
to take the whole trip as a deduction but you may be able to save yourself at
least a little money along the way.
