05/ 30/ 2007
by Karen J. Bannan
How to walk the fine tax line between business and personal travel
Seth Hishmeh, co-founder and COO of New York-based USAS Technologies, travels abroad frequently, sometimes spending a month at a time in India, where his company has a satellite office. Because of these long stints, he often brings his wife along with him. While having her there is great for his morale, it puts a wrinkle in his tax preparation since the trip then takes on a personal flavor.
"For me, I can't always write off everything on a trip if my wife comes with me," Hishmeh says. "My hotel is a legitimate business expense, but if we're sharing the same hotel room, things get tricky."
Macey Davis, NFIB's tax counsel, agrees. "There are so many nuances when it comes to what's deductible with certified business expenses that when you add in something like combining personal travel, too, it's often very difficult for a small-business owner to figure it all out on his own," she says. "When you combine personal and business travel, you have to prorate the expenses between the two."
A common mistake, she says, is assuming that if you are away on business, everything you do on the trip is deductible, and that's simply not the case. For example, even if you're traveling solely because of a business meeting or event, you can't write off meals with friends or relatives whom you saw in your off-hours.
You can avoid problems with the IRS by carefully documenting your activities, even if you have an accountant handling your taxes. Most important: Don't wait for April 15 to get started. Any time you're away on what could be construed as a semi-personal trip, Davis says, it's up to you to document your business expenses.
"You need to have a diary or a log of how your day went so you can justify your receipts," she says. "Recordkeeping can be very time-consuming, but if you're in an audit situation, you will need to have done it."
Davis suggests keeping track of not just what you do and whom you're with but also what you talked about. So if you go to a conference with friends, make sure you jot down what you talked about at lunch.
"If you talked about some of the seminar's courses and your thoughts about issues raised at the conference, then the discussion has some bearing, and you can argue it was a deductible business meal," she says.
NFIB.com
For more tips on how to deduct your business travel, look in "Tax Deductions" in the "Taxes" section of www.NFIB.com/toolsandtips.
