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Can a Self-Employed Taxpayer Mix Business and Pleasure During Foreign Travel and Still Get a Tax Deduction?
Article Highlights:
100% Business
Primarily Vacation
Primarily Business
Special Circumstances
Foreign Conventions, Seminars, and Meetings
Cruise Ships
Spousal Travel Expenses
Note: the business expenses discussed in this article – both foreign and domestic – are not deductible by employees during years 2018 through 2025. However, they are available to self-employed individuals.
When a self-employed individual makes a business trip outside of the U.S. and the trip is 100% devoted to business, all of the ordinary and necessary business travel expenses are deductible, just as if the business trip were within the U.S.
On the other hand, if the trip also incorporates a vacation, then special rules determine the deductibility of the travel expenses to and from the destination; when the other business travel expenses, such as lodging, meals, local travel, and incidentals can be deducted; and when they must be allocated. So, whether you are just visiting Canada, Mexico, a Caribbean island or traveling to Europe or even more exotic locales, here are some travel tax pointers:
Primarily Vacation – If your travel is primarily for vacation and you spend only a few hours attending professional seminars or meeting with foreign business colleagues, then none of the expenses you incurred in traveling to and from the general business location are deductible. Other travel expenses must be allocated on a day-by-day basis, and only the business portion is deductible.
Primarily Business – If your trip is primarily for business and meets one of the conditions listed below, then the expenses incurred in traveling to and from the foreign business destination are deductible in full (same as for travel within the U.S.).
(1) The travel outside the U.S. is for a period of one week or less (seven consecutive days, excluding the departure day but including the day of return). In addition, all other ordinary and necessary travel expenses are fully deductible.
(2) Less than 25% of your total time outside the U.S. is spent on non-business activities. In addition, all other ordinary and necessary travel expenses are fully deductible. (If 25% or more of the total time is spent on non-business activities, then a day-by-day allocation of all travel expenses between personal and business activities is necessary, and only the business portion is deductible.)
(3 ) You can establish that a personal vacation or holiday was not a major consideration. In addition, all other ordinary and necessary travel expenses are fully deductible.
(4) You did not have “substantial control” over arranging the trip. In addition, all other ordinary and necessary travel expenses are fully deductible.Since a self-employed person generally has substantial control over arranging business trips, self-employed individuals usually won’t be able to meet this condition.
When determining what constitutes business and non-business time, business days include days en route to or from the business destination by a reasonably direct route without interruption; days when actual business is transacted; weekends or standby days that fall between business days; and days when business was to have been transacted but was canceled due to unforeseen circumstances.
Nonbusiness days are days you spent on nonbusiness activities as well as weekends, holidays, and other standby days that fall at the end of the business activity, if you remained at the business destination for personal reasons.
Foreign Conventions, Seminars, or Meetings – No deduction for your travel expenses to attend a convention, seminar, or similar meeting held outside of the North American area is allowed unless you establish that:
1. The meeting is directly related to the active conduct of your trade or business and
2. It is “as reasonable” for the meeting to be held outside of North America as it is withinthe North American area.
The IRS defines “North American area” quite broadly and includes not just the U.S., Canada, and Mexico, as you would expect, but also several countries in the Caribbean basin, U.S. possessions, a few Pacific island nations, and some Central American countries as well. In addition to the USA and the following list of locations, the North American area also includes U.S. islands, cays and reefs that are territories of the U.S. and not part of the 50 states or the District of Columbia.
American Samoa | Jamaica |
Antigua and Barbuda | Jarvis Island |
Aruba | Johnston Island |
Bahamas | Marshall Islands |
Baker Island | Mexico |
Barbados | Micronesia |
Canada | Midway Islands |
Costa Rica | Northern Mariana Islands |
Curaçao | Palau |
Dominica | Palmyra Atoll |
Dominican Republic | Panama |
Grenada | Puerto Rico |
Guam | Saint Lucia |
Guyana | Trinidad and Tobago |
Honduras | U.S. Virgin Islands |
Howland Island | Wake Island |
Cruise Ship Conventions –To deduct the cost of attending a convention related to your trade or business on a cruise ship, the ship must be a U.S. flagship, and all of the ports of call must be within the U.S. or its possessions. In addition, the maximum deduction is limited to $2,000 per attendee. The substantiation requirements include certain signed statements by the both you and an officer of the convention sponsor.
Spousal* Travel Expenses – Generally, deductions are denied to a business for the travel expenses of a business owner’s spouse, a dependent, or employee accompanying the business owner on a business trip, unless:
The spouse, etc., is an employee of the taxpayer; and
The travel of the spouse, etc., is for a bona fide business purpose; and
The expenses would otherwise be a deductible business travel expense for the spouse, etc.
*These rules also apply to a dependent or employee of the taxpayer.
However, the law allows a deduction for the single rate of lodging on qualified business trips, and frequently, there is no rate difference between one and two occupants. Thus, virtually the entire lodging expenses for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the business-related transportation would be deductible. This would generally also apply to taxis and ride-share vehicles (Uber, Lyft) at the destination.
As you can see, determining the tax deduction for a foreign business trip that is combined with a vacation can be complicated. If you need additional tax guidance when planning such a trip, please give this office a call.
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