Business Trip or Personal Vacation?

As I sit in a hotel room about to head on an overseas trip, I'd like to know how much of my impending expenses might benefit me come tax time. Fortunately, the IRS has some detailed, if not exactly easy to read, guidance on what's deductible.

Here are the facts: I'm traveling to Austria to visit a client of mine to whom I provide web design services. My wife is joining me, and we've stopped in the Atlanta area to drop off our children at my mother's. What portion of my expenses count for tax purposes?

First, I'm traveling outside of the USA, and will be pursuing some non-business activities. If I want my travel expenses to be fully deductible, I must meet one of four requirements:

1. No control over the trip - This one's out the door. I planned the whole thing myself
2. Outside US no more than a week - I think I'll be able to use this one...my stay is exactly one week.
3. Less than 25% time on personal activities - I don't think my wife will let this one happen. She's not coming with me to Europe to watch me mess with my laptop!
4. Vacation is not a major consideration - I can't legitimately argue this one.

Even if I can't use one of these exceptions to be able to deduct all of my travel expenses, I can allocate the expenses based on the ratio of business days to total days. A business day is any day that I spend most of the work day (probably at least 5 hours) on business, travel days, days my presence is required, or holidays/weekends that fall between business days. Sounds like I better have my client 'require my presence' every day, right?!?

I expect I'll be able to legitimately meet one of the above scenarios and deduct my travel expenses. Notice I said 'my', and not my wife's!

There are a lot more details regarding travel deductions available in the IRS publication on travel expenses.

Sales Tax - Due on Internet Sales?

As more businesses make sales or provide services via the Internet, we're often asked wether Internet-based businesses are taxed differently from other businesses. The answer is no.
The following discusses the tax application for internet businesses:

• Items delivered in Washington
  Washington sales tax must be collected on all sales delivered to customers in Washington. Income from these sales is also subject to B&O tax, though items delivered outside of Washington are not subject to B&O.
  
• Items delivered outside of Washington
  When items are delivered to the buyer at a location outside of Washington, the sale is an interstate or foreign sale and exempt from sales tax, as well as B&O tax.
  
• Services performed in Washington
  Providing services in Washington, such as web design, is subject to B&O tax, regardless of the customer's location.

Out-of-state businesses are required to collect Washington sales tax if they have a physical presence in the state of Washington.

For more information, check the Department of Revenue's website.

Clean Up With A Hybrid

Hybrid vehicles have become very popular recently, especially given the increase in fuel prices. The government has a special deduction available for purchasers of these vehicles, but it may not be what the salesman promised.

Hybrid vehicles are eligible for the clean-fuel deduction of up to $2,000 for vehicles placed in service in 2005. In 2006, the maximum is scheduled to be $500, and the deduction terminates after 2006.

Note that this is a deduction, and not a credit. As such, it will reduce your taxable income, but is not a direct credit back to you. For instance, if you were in the 25% tax bracket, the clean fuel deduction would save you $500.

We wanted to clarify this provision, as some clients have understood when purchasing these vehicles that they come with a $2,000 credit, which is not the case. A list of the vehicles that qualify for this deduction can be found on the IRS website.