Published Date: April 4th, 2023
Reading time: 4 minutes
eRank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.
Spring has become a popular time for various conferences and trade shows around the United States (US). These gatherings can be a rich source of information and new ideas for handmade businesses as well as a great excuse for a fun getaway. This brings up the question that if you mix business and pleasure traveling, what is considered to be a legal tax deduction for your handmade business? This article discusses travel of US-based businesses within the US or US territories.
What is Considered Business Travel?
Per the Internal Revenue Service (IRS), for travel to be deductible as a business expense, it must be “ordinary and necessary” for your specific business. You must look at what your business specifically makes and sells as well as your target market.
For example, if you are a handmade crochet crafter with an Etsy shop, the travel to a craft trade show that includes vendor exhibitors and discussions on different crafting techniques is considered “ordinary and necessary” for your business, even if the show is not specifically about crochet. However, if you have a crochet business and travel to attend a boating trade show, that is not “ordinary and necessary” for your business. This changes, though, if your crochet business makes and sells crochet boat seat covers.
How to Decide Business Versus Pleasure?
In order for your travel to be deductible for business, it must be for the primary purpose of something related to your handmade business. That does not mean that you cannot do something personal during the trip. It means that you must track which expenses are for business versus which are for pleasure.
An example would be if you travel to Orlando to attend a five day crafting conference and visit Disney World for two days. The trip is primarily for business (i.e. the conference). Therefore, the travel (mileage or airfare) to and from Orlando is deductible. Since the majority of the trip is business-related, the lodging expense is also a valid business deduction.
If you travel to Orlando for seven days and visit suppliers for two of those days and the rest is for fun and sun, however, the trip is not primarily for business. The travel (mileage or airfare) to and from Orlando is not deductible. The two days of travel to the suppliers, though, can have expenses related specifically to those two days that are deductible. For example, the mileage to the suppliers or two days of a seven day car rental are valid business expenses.
What about Spouse and Family Expenses?
Using the same example of traveling to Orlando for seven days for a five day handmade crafting conference, if your spouse is an active participant in your business, their travel is also deductible (airfare or mileage) as is the full lodging expense.
However, if your spouse decides to come just for the sun, their travel (airfare) is not deductible. If you drive, the mileage is the same whether the spouse accompanies you or not; and therefore, the full expense is a deductible.
Regarding the lodging expense, if the rate is the same for single or double occupancy, the full cost is a valid business deduction. If the rate is different for single versus double occupancy, only the rate related to single occupancy is deductible.
Expenses related to your children generally are not deductible unless they are normal and regular employees of your business
What about Meals?
The same rules used to determine the travel and lodging expenses are applied to evaluating whether meal expenses are valid business deductions. If the majority of the trip is related to an “ordinary and necessary” reason for travel, meals are deductible. However, in our example of attending a five day conference and spending two days at Disney World, the meals related to the two days at Disney World are not valid business expenses.
Likewise, you would apply the same rules to any meals related to your spouse and children, if also in attendance. Their meals are not business deductions unless they are regular and active participants in your business.
The rules related to the amount of meal expenses that may be deducted are different for the 2021 and 2022 tax years. Check out this previous eRank blog related to Meal Deductions (LINK: https://help.erank.com/blog/meal-deductions-when-and-how-much/) for more information.
Review
Business travel for a handmade business can be a valuable resource for meeting new vendors, researching new products, seeing new equipment, and networking with other handmade craft businesses. The IRS recognizes that business travel is a part of small businesses. It is important, though, to make sure that you are able to demonstrate how the travel specifically relates to your handmade business. What is valid for one business may not be for another. As always, keep all receipts and document the expenses with great detail to be able to explain the expenses, if necessary.
IRS Topic 511 outlines business travel expenses in greater detail. As with all expenses related to your handmade business, it is always best to discuss specifics with your personal accountant.
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Michelle Badger
Accountant (25 + years) and Etsy seller