Travel Expense Question

[SouthPawTee]

We have a primarily online Golf Retail Business near Canada. In the winter there is no Golf where we live and we pick an island where we travel too. While there we promote our business by talking with golfers we meet around the island, distribute marketing materials (cards, stickers and such) and meet with pros and pro shops, we also golf and run our online business from where we are staying. 

We do not "Move our business" to the Caribbean as our shipping is still being done out of the US. 

As we are working everyday. What type of documentation do we need to write this off as a business trip.  

[KimberW]

Whether your entire trip can be categorized as a business trip depends on a number of factors. Business deductions are generally allowed for expenses that are ordinary, necessary, and reasonable. It's important when deciding whether an expenses meets those three criteria to separate yourself from your business as much as possible. 

Based on your scenario, I would not try to claim your winter expenses entirely as a business trip. Imagine that an employee of your company came to you with a proposal to live elsewhere for several months while continuing to do the same work that they do from home. And that employee wants you (the company) to pay for airfare, lodging, meals, etc. while they are living elsewhere. Would you (as the company) consider it to be a reasonable and necessary expense to pay for your employee's living and travel expenses for several months? 

That is the view that the IRS is going to take if you were to be audited. From your company's perspective, is the expense ordinary, reasonable, and necessary?

That's not to say that you cannot ever take a deduction for the business portion of travel -- even if it is combined with personal travel or your family accompanies you. We have a couple of great articles with some details of what can be deducted in similar situations:

Your Summer Travel Can Save You at Tax Time 

Your Guide to Vacations and Taxes 

If you do spend money on business expenses while you're on a trip that would be considered a personal trip -- you can still deduct that expense. For instance, meeting with a golf pro over dinner to build your client base, or attending an industry conference for networking purposes.

For documentation purposes, make sure that you keep receipts for all expenses. And be aware of the additional documentation rules regarding meals, in particular. You must maintain a log of the people who were at the meal, the business purpose of the meal, and an itemized receipt for the meal.

More information from the IRS can be found here: 

Topic no. 511, Business travel expenses 

Publication 463, Travel, Gift, and Car Expenses 

Topic no. 305, Recordkeeping 

Thank you for participating in this event!

-- KimberW

[MariaDG]

This answer very much depends on the primary reason for the travel.  As a general rule of thumb, don't write off an expense unless you can prove it relates to work.

Is this in-person marketing necessary to your business and the main purpose of traveling to an island?  Or do you want to spend the winter on an island, and are taking advantage of the location to do some business marketing while you are there?

Deductions for business travel can be available when someone must travel away from their tax home or main place of work for business reasons. 

Trips that are primarily for personal reasons or vacations are completely nondeductible.  However, if you do conduct any business while you are at your destination, only expenses that are 100% directly related to your business are deductible.  For instance, supplies, internet access, possibly mileage from where you are staying to a business meeting if the business is the primary event (but not if you are doing personal golfing and will happen to hand out some business cards while you are there.)

Additionally, there are specific rules relating to business travel outside of the United States.  If you travel outside the United States primarily for business but spend some of your time on other activities, you generally can’t deduct all of your travel expenses. You can only deduct the business portion of your cost of getting to and from your destination. You must allocate the costs between your business and other activities to determine your deductible amount.

If you do decide to deduct expenses for this travel, you will need to keep meticulous records.  You should keep all receipts, invoices, etc.  Keep logs for time, mileage, and client contacts.  Be prepared to substantiate how many hours you spent on business vs pleasure. 

Review IRS publication 463 carefully, especially the section 'Travel Outside the United States' to see which allocations apply to your situation.

[SouthPawTee]

Couple more questions:

1- If the business meal we are eating is under $75 do we need the itemized receipt? When meeting with locals a lot of the time they want to eat at a local place that tends to be inexpensive. We also are attending happy hours targeting our tourist/golfer clientele and connecting with potential clients buying them a drink or 2.  Nothing is extravagant or lavish we try to keep things friendly and make a connection were handing them our card and offering our service and expertise is welcome. 

2- For us we consider it a complete business trip. We need to respond to emails, check on shipping and update our product offerings like we do when we are "home".  In the summer we are meeting with Pro shops and promoting our business by meeting golfers at the driving range and other "golf friendly" locations a few days a week. In the winter none of them are open around us. Yes we could go to Florida or California which has a strong golfing community however its a mix of people on vacation and locals. Targeting people on vacation in the Caribbean that also play golf tends to increase the affluence level. While there we have daily goals of connecting with a minimum of 5 golfers who are on vacation all 7 days of the week which is a lot more then we would do "at home" daily.   We target islands which attract US and Canadians citizens as they tend to have a higher concentration of our clientele, however we ship worldwide so any golfer is a target. As most Americans stay 1 week and Canadians 2 weeks we are able to keep a fresh rotation of "target clientele".  With Golf being so weather dependent. we try to choose islands with at least 2 golf courses and at least one high profile course. We meet with Locals to discuss the potential of setting up their own local business and using us as a supplier... while this arm of the business has not proven successful YET we feel there is a real potential for this working.

We grocery shop (non-expensed) and cook in the apartment for breakfast and non-working meals. We expense meals eaten out as we are networking and handing out cards or we are eating with a pro or other potential business partner.  Over the 2–3-month period we maybe eat 3-5 meals that are over $75 and maybe 1 we would consider personal like a special Valentines Day Dinner. We do not expense any tours we take for personal reasons. We do expense our golf fees, country club entrance fees and such as that is a great place to meet golfers and their spouses and network.  

Because we do such heavy promotions of our business while we are there every day do you feel/think we would run into an issue claiming the entire trip as business. We do have some "personal time" each day but there are no days that we take the whole day off as "personal". 

In order to justify the above work what type of records do we need to keep? We don't buy most people drinks, we usually strike up conversations with someone we identify as a golfer, give our pitch with nothing physically exchanged except names and our card. 

3- We would like to expense all lodging, all airfare and all meals/drinks eaten out during networking. Based on the above do you think we might run into any issues? 

[MariaDG]

1. The IRS doesn't require that you keep receipts, canceled checks, credit card slips, or any other supporting documents for meal expenses that cost less than $75. However, you must still document the facts of the business meal/meeting. Whenever you incur an expense for business-related meals while traveling, you're supposed to document the following facts:

• The date of the meal.
• The amount (including tax and tip).
• The place of the meal.
• The business relationship. For example, the names and occupations of the people at the meal and any other information needed to establish their business relationship to you. 

2. International travel will attract more scrutiny from the IRS, but that doesn't necessarily mean you can't deduct it.  Large corporations do it all the time. You will just need to be very careful.

Per the IRS,  

Your trip is considered entirely for business if:

• You were outside the United States for more than a week, and

• You spent less than 25% of the total time you were outside the United States on nonbusiness activities.

If you are conducting business for 4 hours or more, 7 days a week, then you may meet this qualification. In this case, you may be able to deduct the entire cost of your trip.  However, you would need to be very careful with keeping records of what work you did on what days, which clients you met with, for how long, etc.  In the instances when you meet with potential customers and don't have any receipts or other documentation, record their names, phone numbers, email addresses, etc in your work log. 

I would personally also recommend keeping an eye on your income throughout the year, and noting any income that was generated by the marketing you do on these trips.  Be prepared to justify that the trip is a necessary and ordinary business expense, just in case you are ever audited. 

You said you typically expect to work 7 days a week.  However, if at any point that is not the case, you'll have to do the math to justify your expenses. Add up the total number of days that you are away.  Add up the total number of days you spent a significant time working (4+ hours).  If its less than 75%, you will need to allocate expenses following the rules in Pub 463.