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June 26, 2014 in Tax Info, Employee Management

Summer Travel Tips for Saving Money and Possibly Taxes

Are you planning a vacation this summer? Two-thirds of Americans have at least one leisure trip planned this summer, according to a recent poll by Harris Interactive, a Nielson Company. That’s 2 percentage points higher than last year’s poll and 6 points higher than 2012. AAA expects 2014 to be the busiest travel season since 2000, thanks to economic improvement and pent-up demand.

Travel trips to save money


Reasons You Want Employees to Take Time Off

One-third of Americans have no vacation plans this summer, according to the Harris poll. Vacation or not, a growing number of U.S. workers don’t take all their allotted time off. The average American was given 14 days off in 2013 but only used 10 days, according to Expedia’s Vacation Deprivation Study.

Reasons workers fail to take time off include limited budgets, poor planning, forgetfulness, lack of resources, work addiction, workplace insecurity and scheduling conflicts. At some companies, working nonstop is seen as a badge of honor.

But vacations may be good for business for many reasons, including:

  1. Liability.Companies may owe employees for stockpiled vacation time that’s “rolled over.” Unless your company limits vacation rollovers or implements a “use it or lose it” policy, unpaid vacation liabilities can be costly. Once employees start banking carryover days, they may not catch up. In fact, some employees use unpaid vacation stockpiles as a form of severance pay if they leave the company.
  2. Fraud risks.Employees who handle money or have access to company accounts and sensitive information may be tempted to commit fraud. Most schemes require constant attention to avoid detection. A mandatory vacation policy is one way to expose fraud. When another employee fills in, fraudulent scams may start to unravel.
  3. Productivity.Vacations offer a chance to recharge and refocus. Rested workers are healthier, happier and more productive.

Encourage employees to take time off. Consider providing managers with phones, laptops or smart devices that enable them to stay in touch if emergency strikes when they’re away. Mid-year is a good time to review each employee’s time-off balance to see who’s due for a vacation.

Leisure Travel Trends

Beaches are the most popular destination, attracting 44 percent of summer travelers. The average leisure traveler plans to spend $1,779, up more than $100 from last year ($1,665).

Road trips remain popular, despite relatively high gas prices. In addition to being less expensive than air travel, many travelers see road trips as a way to tune in to their families.

Combining Business with Pleasure

On the flip side, the Harris poll revealed that business travel is declining. Only 14 percent of respondents have a business trip planned this summer, down 3 points from last year and 9 points from five years ago. Many budget-conscious companies rely less on business travel and more on telephone, video and Internet conferencing these days.

If you’re bucking that trend and planning a business trip, consider turning it into a personal getaway this summer. You may be able to save substantial costs compared to a leisure-only trip.

Most companies will pay for an employee’s airfare, hotel, rental car and meal expenses. So, solo travelers will find most major costs covered. If the employee chooses to bring along his or her family, incremental costs are generally paid by the employee personally — or the employee reimburses the company later on.

Example. A family extended Mom’s three-day business trip to Orlando into a Disney getaway. The employer paid for mom’s ride to the airport ($80), her airfare ($300), three-night’s stay at an Orlando hotel within driving distance to the parks ($750) and a car rental for three days ($120). Mom was also able to expense her company’s per diem allowance for meals ($25) on the two nights that she wasn’t dining with clients. The total was $1,300.

Employees can also use business travel to build up reward points with preferred hotels and airlines. Reward points might be able to be converted to free hotel stays and plane tickets for personal use. Business travelers should select preferred brands and sign up for rewards programs. Points add up quickly — and are easy to redeem.

Opportunities for Business Owners

The cost savings may be even more substantial for self-employed people due to tax deductions, but business owners must be careful to follow the rules to ward off the IRS.

Federal tax law allow self-employed individuals to deduct 100 percent of their transportation costs for business travel within the United States. Transportation expenses include plane tickets, the cost of getting to and from the airport at both ends of the trip, and luggage handling tips. The same rules apply if you travel by car or rail, rather than by air.

The catch. The primary reason for your trip must be business, rather than personal pleasure. If vacation is the primary motivation for your travel, you can’t deduct any of your transportation expenses, even though you may conduct substantial business during the trip.

How do you determine if the purpose of a trip is primarily for business or pleasure? There are no concrete rules, but you can claim a trip is mainly for business when your business travel days exceed your personal travel days.

Here’s a summary of what counts as business days:

Travel Days. Days that you travel to and from your destination count as business travel days. Interim travel days to arrive at non-business destinations don’t count as business days, however.

Working Days. These are days that you spend the bulk of your time during normal business hours working. You can include weekends and holidays that fall between business days, as long as it is impractical for you to return home on those days.

Standby Days. When a customer or client requests that you stick around just in case you are needed, you can count those “standby” days as business days, too, whether or not you’re actually called into work.

Delays and Cancellations. Days that you intended to work, but could not for reasons beyond your control, also count as business days. For example, your meeting might be canceled because the power goes out or your customer falls ill.

The payoff for all this counting of days comes when you can plan your trips to include more business days than personal days. As long as that basic guideline is met, you can deduct all your transportation costs even though you may spend a good amount of time playing golf and hanging around the pool.

Just remember to keep a log and carefully chronicle all business activities, including the date and amount of time spent on each one. If you get audited, the IRS will want to see proof of what you were doing during any travel you claim was for business. Good records are your best defense.

Can you bring your family? Unless family members are employees of your business, you can’t deduct their airfare. But in terms of the hotel bill, you can write off the cost of what you would have paid traveling alone.

Example. You decide to turn your business trip to San Diego into a romantic getaway with your spouse. The hotel charges $250 for a double-room and $220 for a single. You can deduct $220, rather than half of the double rate ($125). To prove your deduction, ask the hotel for a room rate schedule showing single rates for the days you stay.

Saturday Night Stay-Over Rule

You may be eligible to use the “Saturday night stay-over rule” to gain even more deductions when you mix pleasure with business travel. Here’s how: If staying over on Saturday night reduces the airfare for your business trip, you can deduct the out-of-pocket cost of staying the extra time even though you spend it vacationing. Just make sure the extra cost of the stay-over is less than or equal to your airfare savings.

Example. You leave Thursday morning on a trip to attend business meetings that take up most of that day and Friday morning. Then you stay over the rest of Friday and all day Saturday before returning home late Sunday afternoon. By staying over Saturday night, you reduce the airfare cost from $1,700 to $600 (a savings of $1,100). Your additional out-of-pocket costs for meals and lodging on Friday night, Saturday, and Sunday total only $550 ($350 for the hotel and $200 for meals).

Thanks to the Saturday night stay-over loophole, you can deduct your meals and lodging for all out-of-town days (subject to the 50 percent rule for meals). And you can deduct all your transportation costs, because the trip was primarily for business purposes.

Rewards Programs for Business Owners

In addition to signing up for hotel and airline reward programs, business owners can sign up for corporate credit cards that accrue reward points that are redeemable for personal travel expenditures.

You can also set up employees’ corporate credit cards to accrue reward points into the corporate account or the owner’s personal account. Businesses with large mobile sales teams and that purchase equipment using credit cards can build up millions of reward points each year. These reward points may have significant value that is transferable to third parties. In fact, some owners address reward point programs in their estate plans — or periodically gift points to family members.

Consult with Your Tax Adviser

Different rules apply if you travel outside the United States, even for part of the trip. Contact your tax adviser for if you have questions about deductible travel expenses.