Mrs. Accountant and I recently went on a business trip. Like most business trips we invested time, but no money. The trip was better than free; we came home with more money than we started with and did nothing crazy like house-sitting or couch surfing. We enjoyed meals at excellent restaurants and slept in 3 and 4 star hotels every night. We drove in this instance because we like seeing the sites as we go. In all it took three weeks to complete the business trip. It was a great time for Mrs. Accountant and me to spend quality time together without interruption.
There are a million ways to travel for free. Many people in early retirement dream of doing so. But what about the rest of us? You might not be retired. And then there is the unique breed of animal called the business owner. I fall into the last group.
Traveling is something I avoid. Life on the road is not something I look forward to. As I get older I find myself on the road more and more for longer periods of time for business. Now you know why Mrs. Accountant works for my company.
The reason for the trip is not important. What is important is how I accomplished the feat of three weeks of travel and got paid to do so. Actually, three entities paid for our trip: the organization I was asked to speak for, the bank, and the government. The government paid the largest portion of the bill and it was all legal.
Speaking engagements are the biggest reason for time away from home now. Training conferences are second. Many conferences extend over a long weekend, four days in this instance. The four days at the conference were covered: meals and lodging. Personal entertainment and travel were my own.
Owning a business has multiple opportunities for travel. Even folks in early retirement can benefit from a side gig. The tax rules surrounding business travel offer multiple ways to reduce reportable income legally.
To understand how I accomplished a free trip at taxpayer’s expense, you need to understand my personal situation. I own an accounting practice. Mrs. Accountant works for me as a personal assistant. To date she is the only employee I am allowed to sleep with (if I know what’s good for me). The business trip needs to satisfy a few IRS rules. The travel needs to serve a business purpose. And, as with all allowed business expenses, it also needs to be regular and ordinary.
To deduct the expense of a spouse going on a business trip there needs to be a business purpose. Whenever I speak to a group I always have a crowd wanting to speak to me personally. (I’m lovable that way.) Mrs. Accountant handles the scheduling so I can see more people during and after the conference. The goal is not always to acquire new clients, but to build relationships. So we have determined Mrs. Accountant is a part of the business purpose for this trip.
The nice thing about business travel is that the biggest expense is frequently getting there. Once there the cost is relatively low, especially if you cozy up with locals. They know where all the good stuff is and at a reasonable price.
This particular business trip had three days of travel on each side of the conference, plus the four day conference. After the conference I spent several days with attendees of the conference. My travel home was glacial. Traveling to the conference, the conference, and time with peers after the conference consumed 10 days. It took 11 days to travel from the conference to home.
Those were 11 very productive days. The drive home was far from straight. At the conference I scheduled meetings with people somewhere between the conference and home. I visited several tax offices and provided input.
The entire trip was business so I get a deduction for all expenses. Time to break out the calculator.
This whole process so far is based upon owning a business, even a side gig, and enjoying the work you do. None of this felt like work ever! If it started to feel like work I would have drove straight home to spend more time with my junior accountants.
Before I spill the beans on making money on such a straight forward business trip, I will outline the deductions and out of pocket (OOP) expenses.
The four days of the conference were completely free because I stood in front of a bunch of people and shared information. Funny how that works. I still had to get there and there were another 17 days to account for.
I keep gas receipts; blame it on the accountant in me. I use the mileage rate on my tax return, however. I consider the operating expense of the car to equal the IRS mileage rate even though I drive an older car that is far lower in cost to operate: around 30 cents a miles versus the 54 cents IRS rate at the time of the trip in 2016. I love non-cash deductions!
Then we have hotels for 16 days (the 17th day we slept in our own bed). The total hotel expense was $2,112 and change. (We will round numbers here.)
Meals are the last expense we will consider. At the conference meals were provided, but there were no snacks later in the day. I love my evening munchies so much so you might think I smoke weed. I don’t. You just might think it. Actual OOP for meals was $862. Mrs. Accountant is a cheap date. We rarely dine out, but when traveling do so more often. We also hit the grocery store when on the road for snacks, drinks and many of our meals. Most hotels now offer a complimentary breakfast which is more than enough for the missus and me.
Let’s add it up. Mileage is a wash (gas receipts added to $266 for those interested); hotels $2,112; and meals $862.
So how did I make money? Merchants asked me for $3,240 over the course of the trip. (There were also a few stops for museums and a zoo. Entertainment was less than $200 and not deductible in this instance and also disregarded for our math.)
On the business tax return I will deduct something different. The mileage deduction is $1,750 (3,241 miles @ .54). Gas was only $266, but there is wear and tear on the vehicle and insurance to consider. Actual meal expenses totaled $862. Using the hi-low method per diem rates we were allowed to deduct $68 for eight days and $57 for 12 days for meals and incidentals. The tax deduction for meals came to $1,228.
We already listed hotels at actual cost: $2,112.
There is still no profit involved, WA! You pullin’ a fast one? Nope.
Cash out was $3,240 while deductions added to $5,090. We want to toss out mileage as a wash because estimating auto expenses after fuel costs is a pain in the ass. So, cash out is $2,974 and deductions totaled $3,340.
Let’s assume I am in the 32% tax bracket, federal and state (25% federal; 7% state). I’m not. Just play with me here. If I am going to claim the IRS turned this venture into a profit merely by traveling, I am wrong. My non-cash deductions over actual expenses add to $366 ($3,340 – $2,974). $366 * 32% is $117 in tax savings. Not enough to cover all the OOP expenses.
At first glance it looks like the above business trip set me back a bit. But I have a secret. I paid nothing, zero, nada for hotels and meals! I have an American Express card for the business and the points were accumulating.
The problem with using credit card reward for business travel is that you can’t deduct the cost because the amount to deduct is undetermined. Using points to buy an airline ticket means you get no deduction (except for add-on costs such as baggage fees and taxes). I also have an IHG card which has at least 11 hotel stays ready for use. I save those for personal travel.
I did not use these points for free travel because they would limit my tax deductions. American Express, on the other hand, hands out gift cards for restaurants and hotels. See where I am going? I used points to get gift cards and these are now like cash in my pocket and cash in my pocket used for a business expense is deductible.
My real OOP expense was only gas: $266. I paid for hotels and meals with gift cards from Amex. I wanted tax deductions, but wanted to keep my money tucked safely away. I get a $3,340 deduction with only $266 OOP (without considering mileage rates and other expenses of the auto). $3,340 * 32% is $1,069. I left home with a credit card and gift cards. The gas expense on the credit card earned additional cash rewards we did not include. And the government gave me $1,069 in tax benefits, cash. Plus I gained new clients and consulting fees. Where ya going ta get a better deal than that?
The goal behind this thought experiment is to get you thinking about the tax code in creative ways. None of what I illustrated is illegal in any way. Non-cash deductions can rise to significant amounts over the course of a year.
Your situation is probably different than mine. Following my path each step of the way is the wrong way to think about this. A business or side hustle makes it easier to game the tax code. Major corporations have been doing it from the beginning of time. Normal people can do the same. Whether you are retired and traveling or looking for some time away from the shop, there are ways to utilize the tax code to your advantage. We discussed one way to do so. Use this as a starting point to turn travel into a money-producing activity.
Now that you have virtually unlimited amounts of money for travel, you need to find some time. We’ll talk later.