Anyone who spends a significant amount of time traveling for business purposes will tell you that living out of a suitcase is no fun. Despite routinely traveling to destinations many people only hope to visit, many business travelers dislike having to leave home on an extended business trip. Taking a spouse or the whole family along from time to time for a combined business trip/vacation can make the travel more enjoyable. Here are some tax rules to consider when family members accompany a business traveler.
Transportation and Lodging Costs
For a person making a bona fide business trip alone to a U.S. location, the round-trip transportation costs are fully deductible -- as long as the primary reason for the trip is business (as opposed to vacation/recreation). Lodging costs for the business portion of the trip are also fully deductible. When a spouse or other family member without a bona fide business purpose accompanies the business traveler, the amount deductible as a business expense is limited to the single rate cost of transportation and lodging.
Example. Ed has a four-day trade show next month in Washington, D.C. and wants to bring along his wife and son to visit the nation’s capital. The discounted airfare for all three is $500; lodging is $500 for the four nights of the trade show. If Ed makes the trip alone, the cost of a single airline ticket will be $200 and lodging for a single occupant, $400. How much is Ed’s allowable business deduction for airfare and lodging for the family trip? $600 -- the single rate cost. Note: If, instead of flying on their trip to Washington, D.C., Ed and his family drive an automobile on the most direct round-trip route, the expense will be fully deductible, since that will presumably be the single-rate transportation cost.
Primary Business Purpose
Although the tax laws contain no specific rule or definition of what constitutes a trip that is primarily for business purposes, the regulations and case law generally look to the relationship between the number of business-versus-personal days to make the determination. A day in which the traveler conducts bona fide business constitutes a workday, even if less than the entire day is devoted to business. Therefore, if a morning business engagement ends by noon, the traveler need not schedule afternoon business activities to preserve the day as business related.
A rule of thumb used by many business travelers is that the trip should have twice as many business-related days as vacation-related days to ensure its primary business nature. If, on a particular trip, the business purpose rule is not met, none of the round-trip transportation cost is deductible. However, for the business-related days of the trip, the single-rate lodging is deductible, as well as 50% of the business meals.
Example. If Ed and his family extended their trip by one day, Ed’s transportation and lodging deduction would not change. However, extending the trip by three days could jeopardize the primary business purpose of the trip, thus making Ed’s round-trip transportation costs nondeductible.
Before planning a business trip that includes vacation time or accompanying family members, carefully consider the tax ramifications. Call us if we may be of assistance.