5 tips for when an employee combines business and personal travel May 17, 2016 Share Subscribe RFP Ordinary and necessary expenses for an employee’s business travel paid by an employer are generally excludable from the employee’s income. That includes meals, lodging, phone calls, supplies and maybe even laundry service. Yet, an employee’s massage or tennis lesson while traveling on business is not a business expense — nor is a spouse’s sightseeing outing. It’s fine for employees to mix business with pleasure, as long as they’re clear about it because the IRS may well want a clearer look. When determining business versus personal travel expenses, keep these considerations in mind: When a trip is primarily business and within the U.S., the entire cost of traveling to and from the destination is excluded from the employee’s income. But if the trip is primarily personal, the entire cost has to be included in the employee’s income. Whether travel is classified as primarily business or primarily personal depends on all the facts and circumstances, but the amount of time spent at the destination on business versus personal activity is an important factor. For example, if you flew on Monday, took Tuesday as a vacation day, and met with clients on Wednesday and Thursday before flying home, then you spent more time on business than personal activities, so the trip was primarily for business. Once the employee reaches the destination, the rules don’t vary based on whether the trip is primarily business or personal. Costs at the destination paid by the employer that relate to business are excluded from the employee’s income. If the employer pays any costs not related to business, such as a massage or tennis lesson, those costs have to be included in the employee’s income. Travel expenses paid by an employer for a spouse, a dependent or another accompanying individual are not excludable from the employee’s income unless there is a bona fide business purpose for that person’s travel. For travel outside the 50 states, the cost of traveling to and from the destination paid by the employer must be allocated between business and personal, and the portion allocated to personal must be included in the employee’s income. There are exceptions to having to allocate costs: Travel does not exceed seven consecutive days (not counting the departure day but counting the return day). Personal time is less than 25% of total trip time. The employee did not have substantial control over arranging the trip, except for the timing. The employee does not have the authority to decide on the necessity of the trip. Personal vacation was not a major consideration in making the trip. If any of the exceptions apply, allocation between business and personal is not required. Where and how people work has evolved. Employers need to know the tax considerations for varied arrangements, including when an employee works from a home office. Tax professional standards statement This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.