If you're a business owner, you may have upcoming business trips on your agenda. The idea of taking your spouse along may seem like a bonus, allowing you to combine business with pleasure. Just be aware that while your own necessary expenses are generally deductible, the same may not be true for the costs incurred to have your spouse travel with you. His or her travel costs are only deductible to the extent they meet strict IRS rules. Chances are, the deduction will be limited at best. Here's what you need to know.
Is Your Spouse on the Payroll?
If your spouse is a legitimate employee of the company, filling a job with actual duties, you may have met the first hurdle, but there's more. It's not enough for him or her to help conduct business on the trip. Your spouse's presence must fill a vital business role, making it necessary for them to travel with you. That is, taking notes for you, organizing your files and keeping you on schedule don't qualify for necessary business reasons. Generally, if your spouse is there to help host business dinners and other social functions, that also doesn't meet the standards for deducting their costs.
There's one exception to these strict rules: If you have a critical medical condition that requires you to be accompanied on a trip, your spouse's costs may be deductible. It's a good idea to document your condition.
Assuming you've passed these hurdles, your spouse's business travel costs are generally deductible. These include fees for airfare, lodging, meals and incidental expenses, such as dry cleaning or phone calls. You must use the standard rules for business travel away from home.
What If Your Spouse Isn't on the Payroll?
If your spouse doesn't meet the definition of a bona fide employee, you can still deduct the costs you would have spent if you'd traveled alone. Often, the costs of traveling alone are more than 50% of the total. For example, a single room might cost $200 while a double room costs $250. Only the additional $50 would be disallowed, according to the IRS. Be sure to ask your hotel for documentation showing the single rate and the double occupancy rate, and keep it with your tax records.
If you travel by air, your airfare would be deductible, even if you add some days to your trip for pleasure. Your spouse's airfare would be nondeductible. Conversely, suppose you travel by car. The presence of your spouse doesn't increase the expense of driving to the destination, so the costs of driving are deductible, even if you rent a car.
Before You Hit the Road or the Skies
As you can see, deducting spousal travel is restrictive. It's easy to accidentally blur the lines, so the IRS attempts to make the requirements very clear. Mistakes can be costly, so before you finalize your plans, contact your tax advisor to ensure you meet the requirements for deductibility. And, of course, properly document your expenses as you incur them.
Mixed-Purpose Travel Whether you travel alone or with your spouse, you may decide to add extra days to sightsee. All costs you incur for the additional days are nondeductible. Suppose you're traveling by car and take a detour to see friends, adding 100 miles to your trip. You can still deduct the costs that were necessary for business. However, you do need to allocate expenses between those required for business and those for pleasure. If the total cost of your trip – had you not taken extra days or driven extra miles – was $1,800 and the total cost ended up being $2,500, you can deduct $1,800. Suppose you take a trip that's primarily for personal reasons (alone or not). The entire cost of the trip is a nondeductible personal expense. If you incur expenses during the journey directly related to your business — for example, if you go out of your way to deliver a product to a client — be sure to record the mileage and any other costs to keep with your tax records. |