How to Deduct Your Vacation

plan carefully to make your vacation tax deductible

It is almost summer and many people will be thinking about traveling. If you plan it right you might even be able to deduct a good part of your trip.

Travel Primarily For Business

The IRS says that travel primarily for business is fully deductible. If you take a trip that is primarily for business and while you are there you extend your stay for a vacation or take a personal side trip you can still deduct the business related travel expenses. Personal trips are not deductible, but you can deduct any expenses while at your destination that directly relate to your business.

How do you figure out if a trip is primarily business or pleasure? Generally this is determined by the amount of time you spend on business vs. personal activities. If more time is spent on business activities your trip is primarily for business purposes.

Travel Expenses

There are a multitude of expenses that qualify as travel expenses. Transportation, hotel/lodging costs, car expenses (gas, oil, repairs, etc.), taxis, tips, and telecommunication fees are all examples of deductible expenses. Meals and entertainment expenses, however, are subject to a 50% limitation.

Keep in mind that if your spouse or children travel with you, only your portion of the travel expenses are deductible. Even if other family members occasionally assist you in business, unless their presence is necessary for you to conduct business, their travel will not be deductible.

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Tax Breaks for Vacation Homes

tax-free income from vacation homes

It’s almost summer and if you are thinking about buying a vacation home you might be wondering what the tax ramifications are. Some expenses, including mortgage interest and real estate taxes, are generally deductible on Schedule A the same way they are for primary homes. You will need to watch for the dollar limits ($1 million or less, $500,000 or less if married filing separately) on the combined mortgage interest of your main home and vacation home.

You might consider renting the vacation home out during times when you aren’t enjoying it yourself. There’s a neat rule that says if you rent the property for less than 14 days during the year, you do NOT have to report the rental income. But once you go over 14 days you will need to report the rental income and expenses on Schedule E. At that point speak with your CPA to figure out how to best take advantage of that situation.

Tweet it! Get tax breaks and tax-free income from vacation homes! http://bit.ly/1v1CX7x @BetteHochberger

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