Want to pay less tax? The two biggest leverage points for most business owners are (1) picking the right business structure and (2) finding all the deductions you can legally take. Since it’s summer, let’s take a look at an expense a lot of people are facing right now – travel! When is it deductible? What can you do to make it deductible?
An expense becomes a deduction when it is “ordinary” and “necessary” to the production of income. For every expense you have, ask yourself, “How could this become a legitimate business deduction?”
Now, here’s the warning: Not everything will be deductible. I did a seminar one time where I did an ever-popular exercise where we, as a group, look for ways to turn all of the big expenses in our lives into legal tax deductions. I’ve been doing this segment for 10 years now, and it’s still the segment that many people say they enjoy the most. There is something freeing to discover all the things that are deductible once you start a business! Plus, you discover how to Audit Proof(tm) your tax return while you do it!
Anyway – I was doing a Tax Savings seminar in Reno and there was a guy in the front row who had a bunch of expenses. I asked the group to shout out what item they had they wanted to write off. I heard, “My car!” “My house!” “My cell phone!” And then the man in the front row said “My bed!” That one stopped me.
“Your bed?” I asked him. “Is there something special about your bed?”
He went on to explain about all the special features of his adjustible bed. And then he asked how it could be a deduction.
That one stopped me, because the key was that the expense had to be “ordinary” and “necessary” to the production of income….and some things you just don’t want to hear at a seminar! I ended up telling him that the bed probably couldn’t be a deduction. Not everything is deductible…or if it is, not sure you want to talk about it at a public forum!
Let’s get back to the subject at hand: How can I write off my vacation?
Well, if you call it a vacation – you can’t take the write-off. But, if you can prove a business purpose for travel, you’ve got a business deduction. For example, let’s say you have a business selling some kind of product. If you travel to meet with vendors, research new products to development or new ways of creating the product, you’ve got a deduction! Now, let’s say you take your family to Disney World in Orlando. The cost of the tickets to Disneyland probably aren’t deductible (unless that has to do with your business), but if you spend 6 days there and 3 of them are business days (a day in which you do business), then 50% of the expenses (hotels, meals) there are deductible.
Keep copies of your records and especially when it comes to travel, make sure you prove the business purpose. Richard & I keep business cards, brochures, anything that proves where we were and what we were doing when we traveled.