Vacation as Business Deduction?

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:

• you can take the actual expenses (lodging, airfare, meals, etc.) or
• you can take a per diem.

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.

• Sunday:  flew out of DC ($424)
• Monday: arrived in Amsterdam ($424)
• Tuesday: met with Ben to discuss book ($424)
• Wednesday: went to Keukenhof to view the tulips ($0)
• Thursday: met with whole group and discussed business plans and webinars ($424)
• Friday: formal planning meeting with whole group ($424)
• Saturday: dinner meeting with whole group, discussed future goals for organization ($424)
• Sunday: another dinner meeting to discuss future plans ($424)
• Monday: met with executive committee (which includes me now) to finalize what we're doing in the next 6 months ($424)
• Tuesday: flew home ($424)

 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!).

If you want to be a smarter business owner (and keep more money in your pocket), I recommend you attend the Taxes & Bookkeeping forthe Healing Arts Professional workshop in two weeks in Rockville MD. I promise you will come out of that workshop with something that will save you money and aggravation.

 

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.