A recent report shows that business travel on a global scale is thriving in the wake of the pandemic. According to findings from Research and Markets, the market surged to $665.3 billion in 2022 and is projected to reach $928.4 billion by 2030. If you're a business owner who frequently travels, you might be contemplating whether you can claim deductions for the expenses incurred when your spouse accompanies you on these trips.
Consider This - Is your Spouse an Employee?
To be eligible for the deduction, your spouse must be classified as an employee of your company. You cannot deduct the travel expenses of your spouse, even if their presence serves a genuine business purpose - unless they are officially employed by your business. This stipulation typically precludes tax deductibility in the majority of situations.
However, if your spouse is employed by your company, you can deduct their travel expenses if their presence on the trip serves a genuine business purpose. Simply having your spouse engage in incidental business tasks, like taking meeting notes, isn't sufficient to establish a legitimate business purpose. Generally, their presence must be deemed necessary rather than merely helpful for your business endeavors.
Consider a spouse's involvement in social events. If he or she acts as a host or hostess for an event, it is not sufficient to establish a business purpose. If their purpose is to foster general goodwill among customers or associates, it's still usually not considered adequate to use for a claim. However, a genuine business purpose does exist if your spouse's attendance is essential for caring for a serious medical condition that you have.
As a recap, to be able to claim a spouse's expenses on a business trip, you must be an employee and their purpose on the trip must be "bona fide" (meaning their presence on the trip is necessary for the operation or advancement of your business activities). So, mere participation in social functions or performing minor tasks incidental to the trip usually doesn't qualify. Their involvement must directly contribute to the business objectives of the trip. In addition to, their presence should be deemed necessary so establishing this necessity is crucial for claiming their expenses. And lastly, an exception exists if your spouse's presence is essential for caring for a serious medical condition that you have. In such cases, their expenses may qualify as a business expense.
If your spouse’s travel satisfies these requirements, the normal deductions for business travel can be claimed including the costs of transportation, meals, lodging, and incidental costs such as dry cleaning, phone calls, etc.
So, What if your Spouse isn't an Employee?
Even if your spouse’s travel doesn’t satisfy the requirements, you may still be able to deduct a substantial portion of their trip’s costs. According to the rules of deduction for business expense, you're only required to allocate any additional costs incurred specifically for their presence. For instance, many hotels don't significantly reduce the price of a single room compared to a double room. If a single room costs $150 per night and a double room for you and your spouse costs $200, the disallowed portion applicable to your spouse would only be $50. Put simply, you can deduct the cost equivalent to what you would have paid if traveling alone. To substantiate your deduction, request a room rate schedule from the hotel that outlines single rates for the duration of your stay.
Also, if you drive your own car or rent one, the whole cost will be fully deductible even if your spouse is with you. Of course, if public transportation is used, and for meals, any separate costs incurred by your spouse aren’t deductible.
So, did you take a business trip with your spouse in 2023? Discuss your deduction options with your Tax Consultant. As a reminder, business tax returns for Partnerships, Multi- Member LLCs, and S-Corporations are due March 15th, 2024. Begin filing your business returns today by scheduling a meeting with your VAAS Tax Consultant or uploading your tax files via our secure client portal. We look forward to working with you this tax season.