Navigating the ins and outs of business travel tax deductions.
By Mark E. Battersby
Imagine an enjoyable—and educational—vacation with Uncle Sam, in the form of U.S. tax laws, picking up part of the tab. That’s right, every pet specialty retailer, the owners, managers and employees of that business (even someone who is a shareholder/employee), can legitimately claim an income tax deduction for the expenses paid or incurred in attending trade shows, conventions and meetings.
Similar tax deductions are available where a retailer, wholesaler, distributor or any type of pet product business has a promotional or sales booth at a show. In other words, the expenses of exhibiting or selling at a show or other event are tax-deductible business expenses. Even better, the deductions are not limited to selling at local or regional pet fairs or expos. Home shows, gift shows, bridal shows and even events consisting of neighborhood merchants all qualify when selling the business’s goods or services.
Under U.S. tax laws, it is immaterial whether the booth is set up at a show for the purpose of promoting a business, products or services—or to sell those goods, products or services.
Remember, however, expenses incurred creating a unique display or booth may not qualify for an immediate income tax deduction. If, however, that display or booth is for one-time use only, if it is not adaptable to other events or venues, then perhaps an immediate tax deduction as an expense for property with a useful life of one year or less might be in order. Otherwise, the depreciation rules come into play.
Conventions Are Broadening—nd Educational
The U.S. government will also pick up the tab for a sizable portion of expenses incurred attending meetings, trade shows or conventions—if the rules are followed. Generally, all that is required in order to qualify for convention-related tax deductions is that the businessperson is able to show, if asked, that attendance at the event benefited his or her business.
A major downside to the convention expense deduction is that it is not available for the expenses of attending a convention or meeting related to investments or income-producing property. On the plus side, the Internal Revenue Service recently updated the rules for deducting the expenses incurred while traveling on business.
U.S. tax rules clearly state that all travel expenses are tax deductible if the trip to the meeting or convention was entirely business related. So long as the trip is “primarily” for business purposes if the businessperson extended his or her stay for a vacation while at the meeting or convention, made a non-business side trip or had other non-business activities, business-related travel expenses may still be deducted.
If, on the other hand, the trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Naturally, while at the destination, a retailer can deduct all directly related expenses incurred during the meeting, trade show or convention.
Deducting the Essentials
The expenses incurred while traveling to the site of that meeting, convention, trade show or other event are, as mentioned, tax deductible. Tax-deductible travel expenses include such expenditures as the cost of traveling by plane, train, bus or car between home and the site of the meeting, convention or trade show. Also included are the expenses of taxicabs, commuter buses and airport limousines, baggage and shipping costs for samples or display materials, lodging and meals, cleaning, telephone use and even tips. And, of course, all of the costs associated with attending the event itself.
Although the costs of meals and lodging while away from home for any business travel are tax deductible, at least so long as they are not “lavish or extravagant under the circumstances,” the deduction for meals is limited to 50 percent of the total expenses. Food and beverage costs incurred in the course of travel also fall within the scope of the U.S. tax law’s limitation for meal and entertainment expenses—generally 50 percent of such expenses.
The 50-percent rule is applied only after determining the amount of the otherwise allowable deductions. For instance, the portion of a convention-related meal that is lavish and extravagant must first be subtracted from the meal cost before the 50-percent reduction is applied.
Related expenses such as taxes and tips in the case of meals and other charges and room rental and parking fees in the case of “entertainment” expenses, must be included in the total expense before applying the 50-percent reduction. Naturally, allowable deductions for transportation costs and other convention- or trade show related expenses are not reduced.
Should any attendee’s spouse, family members or others accompany him or her to a meeting, trade show or convention, either the attendee or the pet specialty business can deduct their travel expenses. But, only if that individual:
- Is an employee;
- Has a bona fide business purpose for the trip; and
- Would otherwise be allowed to deduct the convention expenses.
In order for a bona fide business purpose to exist, the attendee or the business must prove a real business purpose for the individual’s presence. Incidental services, such as typing notes or assisting in entertaining is no longer enough.
Consider a retailer, Michael Peters who, along with his wife Mary, drove to Chicago to attend a convention. Because Mary is not an employee of Michael’s business and even if her presence serves a bona fide purpose, her expenses will not be tax deductible.
Michael pays $115 per night for a double room. A single room costs $90 per night. He can deduct the total cost of driving his car to and from Chicago, but only $90 per night for his hotel room. If he uses public transportation, he can deduct only his fares.
As an alternative to the actual cost method, both self-employed retailers, manufacturers, dealers and employees can deduct a standard amount, a so-called “per diem allowance” for their daily meals and incidental expenses while attending a convention.
However, even when this standard meal allowance is used, records must be maintained proving the time, place and business purpose of any travel or convention attendance. Unfortunately, if an employer is related to the attendee or is an incorporated pet specialty business in which the attendee is more than a 10-percent principal, the standard meal allowance can’t be used.
In general, the IRS-approved per-diem rates are those paid by the U.S. federal government to workers on travel status. However, instead of using the actual per-diem rates for each locale, a simplified “high-low” per diem, under which there is one uniform per-diem rate for all “high-cost” areas within the continental U.S. may be used.
Under the optional high-low method for post-September 30, 2009 travel, the high-cost area per diem rate is $258 ($2 more than the previous rate), consisting of $199 for lodging and $65 for Meals and Incidental Expenses (M&IE).
Optional Method for the Non-Reimbursed
A revenue procedure introduced by the IRS provides an optional method for both the self-employed as well as employees who are not reimbursed by their employers to use in computing the deductible costs paid or incurred for business meal and incidental expenses. Thus, while attending a convention or trade show under an all-inclusive plan where meals are included, employees and self-employed professionals may claim a legitimate tax deduction for incidental expenses of $5 per day without the need of substantiating that claimed amount.
Backing up the Convention Expense Deductions
In order to claim any tax deductions, every attendee must be able to prove that the expenses were actually paid or incurred. In fact, the following expenses, which have been deemed by the IRS as particularly susceptible to abuse, must generally be substantiated with adequate records or sufficient corroborating evidence: expenses with respect to travel away from home (including meals and lodging), entertainment expenses and business gifts.
Meals and incidental expenses while away from home on business, especially those related to attending a trade show or convention, are a legitimate tax deduction— either the actual amounts spent or the standard M&IE rate provided by the government. Remember, however, although the actual amount of the deduction can be taken from tables published by the IRS, it remains necessary to prove (through adequate records or sufficient corroborative evidence) the time, place and business purpose of the convention-related travel.
Documentary evidence, such as receipts or paid bills, is not generally required for expenses that are less than $75. However, documentary evidence is required for lodging expenses.
Writing Off Education, Fun and Business
Imagine reaping business benefits, an education and enjoyment wrapped up in one trip. In reality, the agenda of the convention does not have to deal specifically with a pet specialty business; it is enough that the attendee can reasonably be expected to gain some business benefit from attending that event. Best of all, thanks to U.S. tax rules, Uncle Sam will pick up a part of the cost of both selling at and attending shows, meetings and conventions. <HOME>
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