Many real estate professionals attend business-related classes, trade shows, conferences, and coaching. When business learning takes you on the road, there’s no reason not to tack on a few days or bring family. But before you commit to a dual-purpose trip, carefully consider what’s tax deductible. These three tips will help.
1. Ensure your trip qualifies as business travel. Per the IRS, in order for your trip to be tax deductible, it needs to be “ordinary and necessary” and outside of the city or area where you work. Expenses can include travel costs of getting to and from your business destination and any business-related expenses at your destination.
To avoid raising red flags with the IRS, the expenses must be considered reasonable and not lavish or extravagant. That doesn’t rule out exotic locales. According to these tips from Intuit’s TurboTax, you could reasonably justify attending a conference in, say, Hawaii or the Caribbean islands. However, it might be more difficult to defend deductions for an overseas conference, such as MIPIM, unless you’re prepared to explain your involvement in global real estate.
Also, expenses for travel must be attributable to a real business versus an interest that’s simply a hobby. The IRS considers whether you are in business to make a profit and whether you are regularly and actively involved with selling real estate. Generally, people who don’t make money in a business for three out of the last five years are considered hobbyists by the IRS and may not be able to deduct business-related travel expenses. But that’s not a hard-and-fast rule.
2. Determine which expenses are deductible. If you need to travel for a real estate conference or business meeting, you can deduct associated travel costs. These include round-trip airfare, car rental, mileage when using your own vehicle, and taxi/rideshare fees. In addition, you may be able to deduct your hotel expenses. Don’t forget about meals; those are deductible, too, but only at 50 percent. If you’re meeting up with colleagues for a networking lunch or dinner and decide to treat: You can deduct 50 percent of the cost of their meals, too. Finally, you can deduct registration fees and course materials required to attend conferences.
Sometimes it works out, and you get to bring the family. If you reserve one hotel room for you and the family for your entire stay during your conference or business meeting, you can deduct the entire cost of the room. However, if you book a second room, extend your stay, or add side trips, those costs aren’t deductible. Neither are meals for family members, unless they work for your business and are attending the event with you.
3. Keep good records. Whether you’re driving three hours for a class to fulfill your state’s continuing education requirement or traveling across the country for a conference, it’s important to keep documentation. Save or scan receipts for your course registration, hotel, meals, and transportation. Don’t forget to separate the receipts required for your real estate business from your non-deductible personal expenses.
If you’re looking for an easy way to separate your real estate business expenses from your personal expenses, try using an app like QuickBooks Self-Employed. It can help maximize your deductions and ensure you stay ready for tax time.
MORE: The IRS offers detailed guidance on what’s considered adequate documentation. And how to determine if you have a business or hobby in the eyes of the IRS.
Source: “3 Tax Tips for Blending Business and Leisure Travel,” (realtormag.realtor.org, August 2016)