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If the trip is entirely for business purposes,
you can deduct all the travel costs, plus meals (at 50%),
lodging, and some incidental costs such as for laundry and
dry cleaning. If the trip is primarily personal, none of the
costs of travel to and from the destination are deductible,
even if some time is spent on business. Lodging, meals, etc.
would be deductible for the business days.
The rules are more complex if the trip
is primarily but not entirely for business. In this case,
unless an exception applies as discussed below, the costs
allocable to the personal (vacation) part of the trip cannot
be deducted. For example, if the trip covers ten days-four
personal and six business-meals, lodging, etc. are only deductible
for the business days. Furthermore, only 60% of the travel
costs (airfare, etc.) are deductible, reflecting the fact
that only 60% of the days of the trip were business days.
The allocation of part of the travel costs
to the nondeductible portion need not be made if the primary
purpose of the trip is business and the trip does not last
for more than a week. A week for this purpose means seven
consecutive days, not counting the day of departure, but counting
the day of return.
Even if the trip does last for more than
a week, no allocation is required if the personal days total
less than 25% of the total days spent on the trip. For this
purpose, the total days of the trip include the day of departure
and the day of return. Even if business is conducted on only
part of a day, it’s counted as a business day. Business
days also include days spent traveling to or from a business
destination and weekend days or holidays falling between two
business days.
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 Example.
Frank flies to Paris on a Monday primarily for business reasons.
He spends Tuesday and Wednesday vacationing and then spends
Thursday, Friday, and the following Monday through Thursday
on business before flying home Friday. Counting the days of
return and departure, it’s a 12 day trip. Only the first
Tuesday and Wednesday are nonbusiness days. Thus, less than
25% of the trip is personal (2 of 12 days). Except for meals
and lodging costs for those two vacation days, the rest of the
meals (at 50%) and lodging, and all of the travel costs (airfare,
etc.) are deductible. The travel costs need not be allocated
between personal and business because of the 25% rule.
If you don’t meet the one week or
25% test, you may still be able to deduct all of the travel
costs if you can show that the chance to take a vacation was
not a major consideration for the trip. Of course, the larger
the vacation portion, the more difficult it will be to make
your case.
As you can tell from the above discussion,
the tax implications of foreign travel can get quite complex,
depending on the nature of trip.
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