Tuesday, April 6, 2010

Deducting Your Travel on Your Taxes: Overview

NOTE: I am not a tax professional.  Although I do deduct my travel as a part of travel-based media producing business, I am not licenced or authorized to give tax advice.  

The Idea:

Question: Let's say no one was willing to pay money to hear Lady Gaga's music (not too far fetched: although I like listening to her, I'd stop if it required cash), but she was given the opportunity to perform for for free for 30,000 people. Would she do it? Of course she would, because she loves to sing. No matter how much music stars may gripe about money, there was a time when every single one of them was willing to perform for free. But even if Lady Gaga is not getting paid to do the thing she absolutely loves, she's not working.

It's the same when you're traveling. You love to travel. And maybe you love to write stories about your travel or blog about it. Maybe you love to take pictures and show them to anyone who cares to look. Or maybe you shoot video while on the road and then edit edit it later into movies. You know what you're doing? You're working, even if you're not making a dime.

And that means you can turn your travel into a profit-driven business.  You might be able to make quite a lot of money on it, but even if you never turn a profit, the tax deductions alone make it worth it. 
Now, before we talk about the specifics, let's talk about both the benefits and the legality of this.

The Benefits:

Firstly, if you have enough money to travel but not enough to disregard its costs, you're probably in the 20-25% tax bracket. Because every dollar you deduct comes from your highest tax bracket, you'll likely be getting $0.25 of that dollar back. If you're deducting your travel, that means you'll be saving 20-25% off your travel expenses. Your $3000 Christmas trip? It now only cost you $2,250. Oh, and the camera you bought for the trip, the new backpack and the clothes? All now 25% off as well.

If you travel a lot or spend a lot traveling, this can be worth thousands of dollars to you.

The Legality:

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury." -Judge Learned Hand (Helvering v. Gregory, 1935)

Firstly, this is not a matter of trying to scam the government. If you travel purely for pleasure and produce nothing but memories, than this is not for you.

But if you're someone who spends time make sure your pictures are properly composed and exposed, if you're someone who spends hours editing your videos when you get home, or if you're someone that re-reads a travel blog post four times before publishing it, then you are a media-producing artist.  And if you are willing to turn your media-making into a profit-driven business, than you deserve to deduct your travel from your income.

Now, it doesn't matter if you actually make money. It doesn't matter if you spent $5,000 traveling and only earned $10 from the resulting photographs.  The IRS can't penalize you for sucking at your business. And it understands that you may invest and loose money for years before you turn a profit because that is what start-up businesses do. It can't penalize you for failure, either. If you spent five years traveling to compile enough stories to write a book that is rejected by a dozen publishers before you finally give up, you are still entitled to deduct every dollar you spent researching that book. That is the beauty of American entrepreneurship.

All this needs on your part is a little organization and a fundamental shift in the way you view your travel. You're not wasting time, you're trying to make a profit.  It doesn't matter that you're having fun. In fact, it's awesome that you love your job!

Oh and, before you start worrying about the paperwork, don't. The IRS has done an amazing job of keeping tax forms simple for a small business person like yourself. You won't have to incorporate your business or register it. You will not have to save receipts for your meals and entertainment. The Schedule C-EZ tax form is only a page long, and if you file electronically, you won't even have to bother with that.

The key thing to note is that if you are willing to try and make a profit from your travel, you'll save a ton of money off your travel even if you fail. 

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