Will the IRS help pay for your vacation?
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Even in tough times, everyone could use a vacation. While Congress takes its sweet time in enacting a vacation subsidy, creative taxpayers boldly try to enlist the IRS to help pay for their summer fun. The results have been, at best, mixed.
Sherman Miller, a teacher in Roseville, Minn., sold insurance on the side. When he bought a condo in the resort town of Hayward, Wisconsin, he claimed that his trips there were all business. The Tax Court tells the story:
Petitioner's insurance-related activity in Hayward consisted primarily of “prospecting” in the years here in issue. Petitioner considers that when an insurance agent meets potential clients who are willing to speak about insurance, the agent is “prospecting”. Petitioner's “prospecting” activities in the Hayward area consisted of going to dinner, playing golf at the Tagalong Country Club and having drinks with persons he considered potential clients.
Nice work if you can get it. The judge wasn't convinced that it was all about business:
Petitioner called his business activity in Hayward “prospecting.” He said that he used two primary methods of prospecting, which were direct mail and “sunshining," and that the method he used in Hayward was “sunshining”. “Sunshining”, according to petitioner, was meeting people who would be likely candidates for purchasing insurance. Petitioner stated that a potential client was “anyone that is living and breathing and of appropriate age." If petitioner asked a golfing partner whether he needed insurance, he considered the game to be a business meeting and the expenses connected with that meeting deductible.
Unfortunately for Mr. Miller, the IRS tracked down some of his golfing partners, none of whom remembered the "insurance" parts of their rounds with him.
If you want to deduct travel expenses, the tax law makes you jump through some hoops.
- You need to show the trip is "primarily" for business. Unless the trip is primarily for business, you get no travel deduction. While facts and circumstances control, the main factor is how you spend your time.
- Document your business activity on the trip. Be ready to show who you met with, what business you discussed and why it affects your business. Receipts are good; results are even better.
- Leave the family behind. Mr. Miller brought his wife to Hayward, where she spent her time knitting in the condo. The judge said this was evidence that it was a personal trip, not a business trip. But when you tell your spouse that the IRS is making you take separate vacations, don't blame me for the consequences.
And I know what you're thinking: "you're blogging this on your vacation and writing it off." I wish. The Tax Court has held that writing on the road doesn't by itself make your vacation deductible. I'm sure the same goes for blogging.
Related: IRS discussion of business travel.