Bringing family or friends along on a business trip and extending your stay can be an excellent way to fund a portion of your vacation costs and save taxes. But if you’re not careful, you could lose the tax benefits.

Generally, if the primary purpose of your trip is business, then expenses directly attributable to business will be deductible.

How do you determine if your trip is “primarily” for business? One factor is the number of days spent on business vs. pleasure. Some days you might think are “pleasure” days could actually be “business” days for tax purposes. “Standby” days, for example, may be considered business days, even if you’re not engaged in business-related activities.

During your trip, it is critical to carefully document your business vs. personal expenses.  The cost of your family or friends traveling with you is not deductible, and should be documented separately.   Expenses associated with taking extra days for sightseeing, relaxation, or other personal activities generally aren’t deductible. But you may be able to deduct certain expenses on personal days, if tacking the days onto your trip reduces the overall cost.

IRS Publication 463 defines travel expense as the ordinary and necessary expenses of traveling away from home for your business, profession, or job.  An ordinary expense is one that is common and accepted in your trade or business.  You cannot deduct expenses that are lavish or extravagant.  An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances.  Expenses will not be disallowed merely because they are more than a fixed dollar amount.

Reasonable and necessary travel expenses generally include:

  • Air, taxi and rail fares
  • Baggage handling
  • Car use or rental
  • Lodging
  • Meals
  • Tips

Also keep in mind that special limitations apply to foreign travel, luxury water travel and certain convention expenses. For example, no deduction is allowed for expenses relating to a convention, seminar or meeting held outside North America unless it is reasonable for the meeting to be held there.