Solved: What part of this trip is personal vs business?
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What part of this trip is personal vs business?

Here is a scenario that seems rather straight-forward but has been causing a lot of debate and dissension amongst 3 family members.  I’m curious to see what others might conclude.

 

Three siblings operate a farm LLC in Nebraska.  Ann (fake names) is the manager of the LLC, which is based in Kearney Nebraska, but all the siblings live in Kansas.  Beth (sibling 2) decided to go on a family trip to Spring Hill, KS to Lincoln, NE.  Two weeks later, Ann arranged for an LLC meeting and dinner event for the farmers, to be held in Kearney, Nebraska and Beth decided to attend it as well.  This meant that Beth drove from her home in Spring Hill, KS (Point A) to Lincoln, NE (Point B), where her original family trip had been planned, and then drove to Kearney, NE (Point C) for the LLC meeting and dinner.  The next day, Beth return to Lincoln, NE (Point B) and eventually returned home to Spring Hill, KS (Point A).

 

Here is the situation.  Beth contacted Ann and requested that she been compensated for her mileage from Point A to B to C to B and back home to A.  In other words, compensation for her entire trip.  Ann’s position is that she should only be compensated from Point B to Point C then back to Point B since that was the only part of the trip that was business related.  Here is where we are getting differing opinions.

 

CPA #1 says that only Point B to Point C then back to Point B was business related and she should only be compensated for that part.

 

CPA #2 says that regardless if her original plans were to go on a family trip, going to the business part should mean full compensation for the entire trip because to get from Point A (home) to Point C (meeting in Kearney) she would have had to go through Lincoln (Point B) in the first place since it was one of the most direct routes to get there.

 

This is causing a lot of headaches so anything you can offer would be helpful.  Again, here was Beth’s route from start to finish.

 

Point A – Spring Hill, KS - Home

Point B – Lincoln, NE – Family

Point C – Kearney, NE – LLC Meeting

Point B - Lincoln, NE – Family

Point A – Spring Hill, KS - Home

 

1 Best answer

Accepted Solutions
Employee Tax Expert

What part of this trip is personal vs business?

This does get tricky as there are many different positions that can be taken, however, I am inclined to side with CPA#1 and this is why:  

 

I am referencing this article, which states:

 

To deduct expenses for business travel within the U.S., the trip must be "entirely" business-related. If you had some incidental personal travel within the trip - visiting family or taking a side trip, for example - the expenses relating to the personal activities (gas miles to someone's home or hotel at a personal location) are not deductible business expenses.

 

If the trip is primarily personal, like a vacation, you cannot deduct business expenses unless you can show that these expenses are directly related to your business. For example, if you take a vacation and spend a morning visiting a client, you can deduct the cost of the visit, but not the cost of getting from your tax home to the client's location.

 

I think your scenario matches the second paragraph - the primary purpose of the travel was personal, so you can only deduct the mileage from Lincoln to Kearney and back to Lincoln.

 

This is also true of what is in IRS Pub 463 (https://www.irs.gov/publications/p463#en_US_2019_publink100033803) if you click on Travel in the United States, Trip Primarily for Personal Reason:

 

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, won’t change what is really a vacation into a business trip.

 

The IRS Pub is pretty clear that only the expense related to business can be deducted (mileage from Lincoln to Kearney and back).

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Employee Tax Expert

What part of this trip is personal vs business?

This does get tricky as there are many different positions that can be taken, however, I am inclined to side with CPA#1 and this is why:  

 

I am referencing this article, which states:

 

To deduct expenses for business travel within the U.S., the trip must be "entirely" business-related. If you had some incidental personal travel within the trip - visiting family or taking a side trip, for example - the expenses relating to the personal activities (gas miles to someone's home or hotel at a personal location) are not deductible business expenses.

 

If the trip is primarily personal, like a vacation, you cannot deduct business expenses unless you can show that these expenses are directly related to your business. For example, if you take a vacation and spend a morning visiting a client, you can deduct the cost of the visit, but not the cost of getting from your tax home to the client's location.

 

I think your scenario matches the second paragraph - the primary purpose of the travel was personal, so you can only deduct the mileage from Lincoln to Kearney and back to Lincoln.

 

This is also true of what is in IRS Pub 463 (https://www.irs.gov/publications/p463#en_US_2019_publink100033803) if you click on Travel in the United States, Trip Primarily for Personal Reason:

 

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, won’t change what is really a vacation into a business trip.

 

The IRS Pub is pretty clear that only the expense related to business can be deducted (mileage from Lincoln to Kearney and back).

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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