Could a small business owner deduct some expenses associated with their vacation if they do work while they are on vacation? Even if the work is significant? What if the vacation was near a client site?
Deducting Vacation on Taxes
Answer: The answer is clearly no because it wasn’t an ordinary and necessary expense related to the business. The work could have been done anywhere. Taking a vacation was not necessary to get the work done.
Deducting Vacation with Family as Business Expense
The purpose of the trip was obviously personal in nature and not required for business. If the business owner, happened to be near a client site, it might change things, but probably not. The fact that it’s close to the client site may improve the odds of you convincing the IRS that the trip was taken in the course of carrying on your business or trade, but the fact that you went to a resort with just your family (rather than employees or clients or something) makes it very unlikely the IRS would go for that.
Claiming Business Deduction
What kind of deductions that a taxpayer claims is up to them. However, legally in this situation, there a probably not enough facts to support the deduction. If there were any expenses actually related to the work that you did while you were there (e.g. supplies, paying for internet, etc.), then you should be able to claim those as being necessary and proper to run your small business. Claiming things like airfare or lodging would be pushing the limit and the IRS would be very suspicious on audit..
If you claim the expenses, nothing will happen if you don’t get audited. If you do get audited, there’s a very high probability that the expenses will be disallowed, and you will face penalties and interest. I don’t think you would have anything else to worry about, since it’s very unlikely they would consider criminally prosecuting someone over something of such a small scale (and they would have to prove you acted willfully), but I think that you would technically be committing a crime.