August 08, 2011
News for Travelers Mixing Personal with Business Travel
Individuals who are required to travel for work may be able to qualify for travel savings by piggybacking a vacation onto a business trip. These savings may include vacation airfare if the trip is scheduled properly. If the original trip is planned out for the employer’s and client’s needs, a sound designed reimbursement plan for the business portion of the trip will be income and payroll tax-free. In order for this to occur, the individual traveling for work must retain details of the time, location, and business purpose of the travel, along with the receipts for allowable expenses.
The entire amount of transportation expenses may be an allowable business expense if the trip was completed primarily for business purposes. While on business, the total cost of lodging and 50% of meals can be expensed. These costs must be directly related to active conduct of business or associated with the active conduct of business and directly precede or follow substantial business deductions. The Internal Revenue Regulations distinguish the difference between business and personal as an important factor upon determining tax exempt reimbursements. The personal part of the trip does not necessarily need to occur at the business destination, but it can occur on the return trip home. Taxpayers who stop for personal pleasure on the way to a business function or on the return trip home should keep records of what their total costs would have been if they had not incurred the personal portion of the trip and allocate total expenses between personal and business costs.
If an employee’s out-of-town business responsibilities conclude on a Friday, the employee may lengthen the business trip to take advantage of a reduced rate fare that requires a Saturday night stay. This can only be executed if the savings in airfare are higher than the costs of the weekend meals and accommodations. Upon meeting these conditions, the employee is therefore not required to recognize income on the employer reimbursement for the Saturday meal and lodging costs.
If an individual has meetings that extend past the weekend, and they are too far away from home to make the commute, then the weekend expenses under the “common sense test” should be treated as business days. If, however, the same situation applies and the individual decides to return home, then the cost of the weekend trip home is only deductible up to the amount of the lodging and meals they would have occurred if they had stayed through the weekend.
The expenses of a spouse or companion are not deductible unless the spouse or companion is an employee of the taxpayer and travels for business purposes and the expenses would otherwise be deductible by the spouse or companion. Even if the spouse’s or other companion’s travel expenses are not deductible, a tax benefit may still be recovered from traveling collectively. The business traveler’s total deductions will therefore be based on the total expense they would have incurred if they traveled unaccompanied, instead of absorbing 50% of the total cost when the amount applies to the individuals collectively.