| Tax Tidbit #5 |
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Tax Tidbits: A series of five articles
presented by Wayne M. Davies of www.YouSaveOnTaxes.com.
Short but sweet tax nuggets for the Small Biz Owner and/or
Self-Employed Person, each morsel serving up a specific tax
reduction strategy guaranteed to tickle your monetary
taste-buds.
The U.S. Tax Code is so big, there's only one way to
digest it: one little nibble at a time.
Just like a piece of candy, one small bite of tax
knowledge can give you one very delicious deduction!
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Tax Tidbit #5:
How to Deduct Your Next Vacation
-- by Wayne M. Davies
Copyright 2004 Wayne M. Davies Inc.
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It is perfectly legal to deduct your next vacation.
Here's how to do it.
To qualify for this deduction, you must meet the following
two criteria:
1. You are self-employed or own a small business
2. On your next trip, you combine business with pleasure.
The first requirement is pretty cut and dried.
The second requirement is somewhat trickier and will be
the focus of this article.
To deduct any U.S. trip, you can combine business and
pleasure, but the primary purpose of the trip must be
business.
And here's how the IRS defines a trip taken primarily for
business purposes: the number of "business days" is
greater than the number of "personal days". To complete
the definition, travel days are considered "business
days".
Here's an example to clarify the rules:
You take a 10-day "vacation" to Orlando. You spend one day
getting there and one day getting back. You spend 4 days
attending a seminar. The other 4 days are spent with
Mickey Mouse & Company.
Let's tally up the days:
Business Days = 6 (2 travel days + 4 seminar days)
Personal Days = 4 (doing theme parks)
So, are the number of business days greater than 50% of
the total days? Yes. So here's what you get to deduct:
-- 100% of your transportation expenses (even though
40% of your days were personal days)
-- 100% of your "on-the-road" expenses for the 6 business
days, including hotel bills, cab fares, rental car, seminar
fees, dry cleaning, laundry and meals. (Although the meal
expenses are still subject to the 50% rule.)
The on-the-road expenses for the 4 personal days are not
deductible. But you're still getting a great tax break here.
Assuming you spend $1,000 for transportation and the 6
business days, a sole proprietor in the 35% tax bracket
(15% federal tax + 15% self-employment tax + 5% state tax)
saves $350.
Three hundred and fifty bucks!
Hmmmm . . . now that's a tasty little morsel!
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Wayne M. Davies is author of the best-selling ebook,
"The Tax Reduction Toolkit: 29 Little-Known Legal Loopholes
That Will Reduce Your Taxes By Thousands"
(For Small Business Owners and Self-Employed People Only!)
http://www.YouSaveOnTaxes.com/toolkit
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