What you need to know about deductions when taking business vacation trips outside the United States

We all understand that trips outside of the United States are deductible for employees if the primary purpose of the trip was for business. 

However, what we often don't know is that such a trip is only deductible if the employee had no control over the assignment of the trip, is not a managing executive of the company, holds  10% or less of the company stock an is not related to the employer. A managing executive is one who can make the decision on whether the trip should be taken.

What about the Managing Executives, self-employed persons, employees who are related to the employer or who own more than 10% of the company stock?

Well, the good news is they can still deduct the costs of a business trip if the total time outside of the United States was 1 week or less, not counting the day of departure but counting the day of the return.

If the trip lasted longer than 1 week, then the trip can still be deductible if:

 less than 25% of the taxpayer's time was spent on vacation or other personal activities;  

      or   the planning of the trip was organized to conduct business rather than to take a vacation.

If the 25% rule is not satisfied, then the taxpayer must allocate travel expenses between the business part and the personal part by dividing the number of days spent in the business activity by the number of days spent outside the United States, then multiplying the travel expenses by that fraction. 

OK, more good news for Managing Executives, self-employed persons, employees who are related to the employer or who own more than 10% of the company stock.

 If scheduled business activities are several days apart, then those days are counted as business days even if the taxpayer uses them for vacationing. The following are considered business days:

Business days: Days mainly devoted to business.

Required presence: if you are required to be there, even for a short time, then it counts as a business day.

Business travel: Days traveling to another business location, but only the number of days that would be required to travel to the destination directly.

Weekends and holidays that are between business days, not including the return-to-home day. So if you spend Friday and Monday on business, but spend Saturday and Sunday sightseeing, then that counts as 4 business days. But if you spend Monday sightseeing, then work on Tuesday, then, if Monday was not a holiday, that would only count as 2 business days.

If a business trip consists of both domestic trips and foreign trips, then the number of days counted either for business or personal reasons is only for those days outside of the United States.

If travel is by cruise ship, then the maximum deduction that can be claimed is limited:

Maximum Deduction for a Cruise Ship = Number of Days on the Cruise Ship × Highest Federal per Diem Rate for Travel in the United States × 2.