My family loves Hawaii. We go there every winter to escape the harsh winters of East Bay, CA (hehe, j/k).
Because Im cheap (or money-conscious), I try to be as frugal and reasonable as possible. Here’s what would typically costs us during our 10 day trip.
• Hotel/Airbnb: $3,000 for 10 nights
• Rental car + parking : $900 for 10 days
• Uber (to and from the airport): $100
• Airfare for 4 of us: $2,000
• Food for 4 of us: $2,000
• Total: $8,000
Since personal vacations are not tax-deductible, none of $8000 would normally be deductible.
But as a tax nerd, I contemplated ways to turn non-deductible expenses into deductible business expenses. That’s an example of an expense-shifting strategy in the tax strategist world.
So, I came up with the idea of planning our winter vacation to coincide with business conventions happening in Hawaii.
Here’s what I did—and my plan gave me $5,000 in deductions.
The Tax Concept Essential to Creating a Tax-Deductible 10-Day trip
The key tax concept to creating a tax-deductible itinerary is understanding business days. If a day qualifies as a business day (as opposed to a personal day), then ordinary and necessary expenses can be deducted.
Examples of business days:
Travel days: days to travel to and from your business destination
Work days: if you work for at least 4 hours a day (e.g., attending a conference)
Weekend days sandwiched between business days: even if you do not perform any business activities
The main goal is to structure your itinerary so that each day counts as a business day. If every day is a business day, then all ordinary and necessary business expenses (that are not considered as lavish or extravagant) can be deductible.
My itinerary from My Last Hawaii trip:
• Monday: Flew to Hawaii in the morning and spent the day at the beach with my family. This counted as a business day because travel days are considered business days.
• Tuesday – Friday: Attended a conference in the morning, for at least four hours per day, making these business days.
• Saturday & Sunday: Since the weekend was sandwiched between two business days (Friday & Monday), they automatically counted as business days.
• Monday: Scheduled a business meeting with associates for four hours and this counted as a business day. Without this, the weekend would not have qualified as business days.
• Tuesday: After spending the day vacationing, we flew back home in the evening. This travel day counted as a business day.
In summary, I spent only 16 hours attending the conference and 4 hours meeting with my associates to complete this expense-shifting strategy.
How I Saved $5,000.
1-bedroom AirBnb in Wakiki: $3000
Rental car + parking: $900
Uber (to/from the airport): $100
My airfare: $500 (the other $1500 for my family was not deductible since it was not a necessary business expense)
My meals: spent $1000, but only 50% ($500) deductible per tax rules. (family meals were not deductible)
Total Deductions: $5000!
Key Takeaways and Important Considerations
You must own a business. If you only have W-2 income, this strategy won’t work because W-2 employees can no longer deduct unreimbursed business travel expenses as of now. This is yet another reason to consider having a side gig as a doctor to take advantage of tax rules that allow you to create deductions.
Expenses related to sightseeing or family outings incurred during business days are not deductible - they are considered personal expenses and, therefore, non-deductible. Make sure to separate personal expenses from business expenses, keep receipts, and document the business purpose for each deduction.
Only your expenses (not your family’s) are deductible.
Hotel stays may be partially deductible - you can deduct what you would have paid for single occupancy room. If you book a double occupancy room for your family, only the cost of a single occupancy is deductible. In many cases, though, single and double occupancy rates are the same or very similar. Keep a screenshot of the rate for single and double occupancy as proof in case of an audit.
For Airbnb: Since my rental was a 1-bedroom unit with a single rate, I was able to deduct the full amount. Had I booked a 2-bedroom property, I could only deduct the market rate of a single bedroom unit.
Final thoughts
What I shared here demonstrates how understanding tax rules and applying them strategically to your specific circumstances can help you legally create tax deductions by shifting what would have been non-deductible personal expenses into deductible business expenses.
By planning ahead and following the IRS guidelines, you can save on taxes while still enjoying a well-deserved Hawaii vacation!!!
Disclaimer
One of my heroes, Mel Herbert, MD, founder of EM-RAP, may have once said:
“Don’t just do something, stand there.”
That would be my advice to you after reading my blog—stand there (for now) and don’t do anything (yet).
Why?
While I am a tax professional, I am not your tax professional. I do not know your particular situation, and tax matters can be complex. What works for one person may not work for another.
Before taking action, assess your situation and consult with your tax professional to ensure any strategy aligns with your specific circumstances.
Share this post