How Business Travel Tax Deductions Work
Retailers can legitimately claim an income tax deduction for a sizable portion of their expenses in attending Global Pet Expo, provided they follow certain rules.
Enjoyable, educational, profitable—hopefully, these are all words that describe your time in Orlando, Fla., for the latest edition of Global Pet Expo. One word that probably does not come to mind, however, is inexpensive.
While traveling to trade shows and conventions often represents a valuable investment in your business, it is by no means a cheap endeavor. Still, the expense can be made much more palatable if Uncle Sam is picking up part of the tab, in the form of our nation’s tax laws.
That’s right, every pet business operator, owner, manager and employee can legitimately claim an income tax deduction for a sizable portion of the expenses of attending events like Global Pet Expo, provided certain rules are followed.
Generally, in order to qualify for convention-related tax deductions, all that is required is that the attendee be able to show, if asked, that attendance at the event was business-related.
Among the expenses that can be claimed as tax deductions are costs such as:
- Registration fees
- Standard mileage for a vehicle driven to the event
- Air, bus or train fare
- Lodging, including tips
- 50 percent of meal expenses
Unfortunately, if a spouse, dependent or other individual accompanies an attendee on the trip, that individual’s travel expenses are not usually tax deductible. Of course, if a bona fide business purpose exists for the individual’s presence and can be proven, a tax deduction might result. Incidental services, such as keeping notes or assisting in entertaining customers, are not enough to make the expenses deductible. Generally, the travel expenses of someone accompanying an attendee can be deducted if that person:
- Is an employee of the business,
- Has a bona fide business purpose for the travel, and
- Would otherwise be allowed to deduct the travel expenses
If a business associate, such as a current or prospective (likely to become) customer, client, supplier, employee, agent, partner or professional adviser travels with an attendee and meets the conditions above, their expenses can be deducted. Consider our hypothetical pet retailer, Jerry.
Jerry drove to Orlando to attend Global Pet Expo and takes his wife, Linda, with him. Although Linda occasionally keeps notes, performs similar services and accompanies him to luncheons and dinners, she is not Jerry’s employee. The performance of these services is not enough to establish her presence on the trip was necessary to the conduct of Jerry’s business and her expenses are not deductible.
However, regardless of who accompanies him, Jerry still has deductible expenses. Consider that Jerry pays $199 a night for a double room, while a single room costs $149 a day. He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. If he uses public transportation, he can deduct only his fare.
Receipts for expenses of $75 or less are not required, in most cases. Thus, if you take a taxi from your hotel to the site of a trade show or convention for a cost of $12, no receipt is required. There is an exception, though: You need a receipt for lodging of any amount.
Although you may not be required to keep all receipts, it doesn’t hurt to do so. They often serve as a reminder of a deductible expense, especially where the payment was in cash.
Keep in mind that while there is no overall dollar limit on the amount that can be deducted for show-related expenses, entertainment and meal costs that are “lavish and extravagant” cannot be deducted. What’s more, everyone is limited to a deduction of only 50 percent of the cost of meals and entertainment expenses. However, the 50 percent rule is applied only after determining the amount of the otherwise allowable deduction. So, related expenses, such as taxes and tips on meals or parking fees, must be included in the total expense before applying the 50 percent reduction.
Per Diem Deductions
When it comes to lodging, meals and other incidental expenses, the IRS allows every pet retailer to claim a federal “per diem allowance,” which is determined by the location of the trip and/or conference. There is a per diem rate for lodging and a separate one for meals and incidentals.
Under the optional high-low method for 2017 travel, the high-cost area per diem rate is $282, (up from $275 in FY 2016), consisting of $214 for lodging and $68 for meals and incidental expenses (M&IE). The per diem for all other localities is $189 (up from $185 in FY 2016), consisting of $132 for lodging and $57 for M&IE.
When it comes to that 50 percent limit on meals, everyone traveling away from home for any length of time may deduct half of the per diem allowance or “Standard Meal Allowance” (SMA), rather than half of the actual cost of meals, laundry, cleaning and tips.
The advantage to using the standard meal allowance is that records don’t have to be kept of actual meal expenses, although records do have to be kept to prove the time, place and business purpose of your travel. The biggest disadvantage is that the standard meal allowances are not very generous. Chances are that the actual expenses—and therefore the deductions—would be larger.
Working in a Vacation
Every pet retailer can deduct all of their travel expenses if the trip was entirely business related. If the trip was primarily for business and, while at the business destination, the stay was extended for a vacation or other personal activities, only the business-related expenses can be deducted.
Naturally, if the trip was primarily for personal reasons, the entire cost of the trip is considered to be a nondeductible personal expense. However, any expenses incurred while at that destination that are directly related to the pet business are, of course, deductible.
In the eyes of the IRS, a trip to a resort or on a cruise ship may be a vacation, even if advertised as primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, rarely changes what is really a vacation into a business trip.
It should also be noted that no tax deduction is available for the expenses of attending a convention, seminar or similar meeting held outside the North American area unless it is “reasonable” to hold it outside the North American area.
Travel expenses are among the most common business expense deductions. But since this type of expense is also one of the most confusing, now might be the time to seek a professional guide through the tax rules.
Mark E. Battersby is a freelance writer, columnist and author with more than 25 years experience with business taxes and finance.