Many real estate professionals pursue professional development, and continuing education credits, through 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 will qualify as business travel. according to 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. In order to avoid 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 backed by a real business versus an interest or 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. People who do not make money in a business for three out of the last five years are considered hobbyists by the IRS, which may eliminate the ability for you to deduct business-related travel expenses, although it is not a hard-and-fast rule. Here are some guidelines from the IRS on how to prove you run a legitimate business.
2. Determine what is/is not deductible. If you need to travel for a real estate conference or business meeting, you can deduct associated travel costs. These include things like round-trip airfare, hotel expenses, car rental, mileage when using your own vehicle, and taxi/rideshare fees. Meals are also deductible, but only at 50 percent. If decide to host a networking lunch or dinner and you 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 the timing is right and you are able to bring the family. If you reserve a single 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. Alternatively, if you book a second room, extend your stay, or add side trips, these costs aren’t deductible. Neither are meals for family members, unless they work for your business and are attending the event with you.
Here’s an IRS fact sheet on travel, entertainment, and gift expenses.
3. Keep a record of all Expenses. Whether you’re driving three hours for a class to renew your state’s education requirement or traveling across the country for a conference, it’s important to keep documentation of your business related expenses. Save or scan receipts for your course registration, hotel, meals, and transportation for the entire year. Don’t forget to separate the business related receipts from your non-deductible personal expenses. The IRS offers detailed guidance on what’s considered adequate documentation.