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The Tax Prophet Newsletter   Issue # 39 August, 2006

REDUCE TAXES!
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In This Issue:
Introduction
Basic Rule
One-Week Rule
25% Rule
Example


Deducting International
Business Travel


Introduction

In last month's newsletter, I discussed the rules regarding domestic travel.

This newsletter deals with foreign trips that mix business with pleasure, and how to stay one step ahead of the tax collector.

Basic Rule

For foreign business trips, the basic rule is you allocate all travel expenses, including transportation costs, between business days and personal days. Under this rule, it is preferable to conduct some business over several days, rather than cram all your business activities into one or two days.

Despite this general rule, by planning ahead, you may take advantage of two exceptions that permit the deduction of all foreign transportation costs.


One-Week Rule

As long as your business trip lasts one week or less, you can deduct 100% of your transportation costs (air fare, rental cars, taxis, trains). Remember, the main reason for your trip must be business. To determine if you qualify for the one-week rule, you can count the day you return, but not the day you leave.

You deduct out-of-pocket daily living expenses for all business days abroad, but not for vacation days. Business days include travel days, weekends and holidays falling between business days, standby days (days when you are physically required to be around, regardless of whether or not you actually work) and days you intend to work but can't for reasons beyond your control (e.g. flight delays due to weather).

Of course, with cell phones, laptop computers and e-mail, a little imagination and creativity can turn almost any day into a business day, regardless of your actual location (working on business proposals or sending business e-mails from your hotel at the French Rivera).


25% Rule

Even if your foreign business trip lasts for more than a week, you may still qualify for the 25% rule if you spend less than 25% of your total days vacationing. For this exception, you count departure date and return date as business days. This is in addition to all the other types of business days listed above.

If you qualify for the 25% rule, you deduct 100% of your transportation costs and daily out-of-pocket living expenses for business days (subject to the 50% limit on meals).


Example

Assume Sam needs to discuss a major project with his foreign client: He leaves on Thursday and has a meeting with his client on Friday. He then travels to Switzerland on Friday night and stays through Wednesday for non-business purposes. He meets the same client on Thursday and then takes off from Friday through Sunday. He meets the same client on Monday and flies home Tuesday.

Because two weekends fell between business days, those four days, as well as his two travel days, count as business days. Sam actually met his client on three days, so the total number of business days is 9. The total number of personal days is 4, although, in reality, Sam spent 8 non-business days (including both weekends) overseas. Sam meets the 25% test.




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All contents copyright 1995-2006 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.