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If it's really a vacation, the IRS doesn't want to pay for it

It's high vacation season in Iowa.  As your inbox fills with "Out of Office" auto-replies, you might be wondering whether there's a spot on your return to deduct a nice trip to somewhere cool.  Didn't you overhear somebody's doctor bragging about how his tax preparer let him write off his vacation to California because there might be sick people there?

20110731iabiz It's not so easy. 

Yes, there are preparers who will let you deduct a vacation for even the most strained connection to your business.  The tax law itself, however, has a stricter standard, as the clients of an Iowa preparer have been learning. 

According to a U.S. District Court opinion, the preparer encouraged clients to employ relatives as distributors, or to sell to them, to make family vacations deductible:

You want to go visit your mother for Thanksgiving . . . . If you’re self-employed and you  sponsor your mom into your business, now you’re going to meet with your distributor. All of a sudden, that trip for Thanksgiving is a deductible business trip.

Sorry, Mom.  The tax law has a much stricter standard for these things.  Your trip has to be "primarily" for business reasons.  Good luck convincing an IRS agent that you really visited Mom for four days on Thanksgiving weekend to sell her vitamins. 

IRS Publication 463 explains what the rules really are:

If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip.

The IRS isn't required to take your explanation of your travel costs on your word.  In fact, it's up to the taxpayer to document the amount, dates and times and business purpose of any travel expenses.  If you are in the real estate business and you happen to go to Arizona during Bowl Season, you have to do more than just say you are going to check out the great values in Tempe real estate.  Unless you can show you went there primarily to check out real estate, with dates, names, documentation and proof you are serious about it, don't even try to write off the trip. They aren't going to buy it.

And the preparers that say you can write off your vacations?  There is one less now.  Last month a federal judge permanently barred that preparer from the tax prep business.  That preparer's clients have been getting special attention from the IRS.


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