Summer. It’s the perfect time to get away from it all for a few days, or preferably, longer. Of course, when you’re running a freelance business, it’s almost impossible to get completely away unless you throw your iPhone out the car window on your way to your destination (not suggesting that you do this, of course). It’s almost inevitable that a little bit of work is likely going to creep into your summer vacation—or you might decide to add some vacation days onto a business trip that finds you in a trendy hotspot. In either situation, work plus play can equal some vacation season tax deductions if you follow these simple guidelines:
Unfortunately, just taking a few calls or answering email while you’re on the beach will not qualify you to write-off your travel expenses. In order to deduct the cost of getting to your spot in the sand, your trip must be primarily for business. So if you live in New York and have a new client in California with whom you are doing an on-site meeting, feel free to add a few days of beach time and deduct your airfare. If you’re heading out of the country to mix business and pleasure travel, you can still deduct your airfare—if your trip is at least 75% business (if not, you can still prorate your travel costs). Just keep in mind in both cases that your meals and accommodations for “off-duty” days will be all on your own dime.
If you’re combining your business travel with a trip with your significant other, friends or family members, you can still deduct your own travel expenses if they are, as the IRS puts it so eloquently, “…ordinary and necessary expenses for your job or business.” In addition to your own transportation costs, you can deduct the bill for the cost of a single room for the days that you are actually working. If you have to upgrade to a suite or get an additional room to accommodate tour traveling companions, those expenses would not be tax deductible. You can also deduct 50% of the cost of your meals on the days that you are working while you are away. However, you should ask for a separate bill if you dine with others so that you can track and itemize your expenses more easily.
You can keep all the receipts you want and itemize whatever expenses you have on your tax return. However, if the IRS does not consider them to be “reasonable” business expenses it will all be for naught (that means no tax deductions). So avoid the urge to splurge because “you’re on business” and you can “write it off anyway.” Be prudent and practical with your expenses related to meals, travel and accommodations otherwise the IRS may not find them to be “ordinary or necessary” for your business.
In addition to the obvious transportation, meal and accommodation deductions, you can also claim taxi and other transportation fares (and tips) that are related to your work while at your destination. Plus, you can claim many other incidental expenses including:
The caveat here, as with any other deductible expense, you must have the required documentation, so hold onto those little, crumpled cash register receipts you accumulate along the way as if your tax deductions depend on them—because they do.
To protect yourself in the event that you or your freelance business become the subject of an IRS audit, in addition to receipts and expense records, you should also keep detailed records your work-related itinerary including meeting times and dates, names of meeting attendees, and the topics you discuss. If you attend seminars or conventions keep copies of the daily schedules to help verify the length and purpose of your travels. When you return home from your business travel/vacation, be sure to file these records and receipts with your other tax documentation, then update your accounting records to reflect your new-found tax deductions.
Say you get a hot lead for some new freelance work that requires you to do an in-person pitch in a city you’ve never visited before. Sounds like a great opportunity to get some new business anddo some sightseeing while you’re there. Essentially, the same rules will apply to this type of travel as with any business travel that you combine with some personal travel. Even if you don’t end up getting a new client out of your adventure, at least you can deduct the expenses for the business portion of your trip.
With vacation season here, keep the tips above in mind and consider adding a little more play to your freelance work travels. It can make your business-related trips more fun, plus you’ll still be able to take advantage of some significant tax deductions.
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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