RTS #029 Let’s play a game

It’s one of the most common questions I get when people find out I’m a CPA: “Can I deduct ________?”

I still get to hear all of the “fun” tax planning ideas that we shared reminders about last week, but adding to the joy of time with friends and family is this lovely game of Can It Be Deducted?!?!

So, over the next few weeks, we are going to play our own version of this game proactively. As you play along at home, make sure you are thinking about things that already happened in 2023 as you get ready for your tax filing, as well as plans you are making for 2024 and how they might be adjusted or tweaked to make the most out of them.

First topic for the game of can it be deducted: travel.

Let’s say you are taking a trip with your entire family (you, your spouse, and two kids) that will include airfare, a rental car, and a hotel. What can you deduct?

First question is: “Is there a business purpose for the trip”? It doesn’t have to be the whole trip, but having a business purpose for some portion of the trip is the best way to make an argument for any of the expenses related to the trip being deductible. This only helps business owners; even if the trip is for work, unreimbursed expenses for W-2 employees are not tax deductible. “Business purpose” for a trip could be a whole range of things: conferences, in-person meetings, team retreats, content creation, strategic planning and business coaching are all on the list of reasons I’ve traveled for business. Whether I’m starting with a business trip and tacking on fun or planning a family trip and looking to do business around it, there always has to be an underlying business purpose for the trip.

Once we’ve established the business purpose, it’s time for tax math. Any expenses that can’t be separated from the amount of time of the trip get deducted as a business expense. So when I fly to another city, if I’m there 10 days total and only 1 is business, I’m still deducting my flight. My family’s flights are not getting deducted (unless they are on payroll and participating in the business portion of the trip), but 100% of my flight goes on the books. For expenses that can be broken out, I’m adjusting for the number of days related to work vs. personal.

But for those expenses being broken down by day, I’m still taking the full deduction on the business days and not ¼ to account for there just being one of me and 4 people in my family in total. Why? Because whether I go by myself or bring the family I am reserving a hotel room and I’m renting a car for those days. So it gets deducted.

Don’t get cute with this. Taking your laptop with you and responding to emails in Mexico does not mean you are now on a business trip. Like any other business expense, the IRS is looking for whether it’s ordinary and necessary to your business.

Come back next week for round two of our game: home ownership, including a special bonus for expenses that should be deducted if you are taking advantage of the Augusta rule.

What can you do about it?
Take the time to ask questions when you are planning trips. Sometimes, it is 100% worth it to just take personal trips and leave the tax planning aside. But with a little proactive planning and an intentional approach, you can add hundreds and, at times, thousands of dollars to your annual tax savings.

Happy Tax Planning!