Attending trade shows is a valuable part of business strategy—with tax benefits.
Self-employed specialty fabrics professionals—the owners, managers and employees of an industrial textiles and products business, even shareholder-employees—have long been allowed to claim an income tax deduction for the expenses of attending trade shows, conventions and meetings. Thanks to federal tax laws, the government will pick up the tab for a sizable portion of the expenses of attending events, if the rules are followed.
Generally, 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 trade show, meeting, convention or other event had business-related benefits.
Underwriting with tax deductions
Federal tax rules allow a tax deduction for all of the ordinary and necessary expenses paid or incurred in carrying on a trade or business, which means that every business person can deduct the expenses of attending a meeting, trade show or convention. All that is required is a bona fide business purpose.
Unfortunately, if a spouse, dependent or other individual accompanies an attendee on a business trip, even a trip to a trade show or convention, that individual’s travel expenses are not usually tax deductible. Of course, if a bona fide business purpose exists for that individual’s presence and can be proven, a tax deduction might be acceptable. Incidental services, such as keeping notes or assisting in entertaining customers, are not enough to make the expenses deductible.
In general, 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;
- would otherwise be allowed to deduct the travel expenses.
If a business associate, such as a current or prospective customer, client, supplier, employee, agent, partner or professional advisor, travels with an attendee and meets those second and third conditions, those expenses can be deducted.
Consider the hypothetical situation of a specialty fabrics professional.
Tom drives to Chicago to attend a business meeting and takes his wife, Jeri, with him. Although Jeri occasionally keeps notes, performs similar services and accompanies Tom to luncheons and dinners, she is not his employee. Her occasional assistance is not enough to establish her presence on the trip as necessary to the conduct of Tom’s textile business, and her expenses are not deductible.
Regardless of who accompanies him, however, Tom still has deductible expenses. Consider that he pays $199 a day 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 can only claim $149 a day for his hotel room. If Tom uses public transportation, he can deduct only his fare. Jeri is on her own.
Receipts: necessary or unnecessary?
Receipts for expenses of $75 or less are not required; however, whenever business expenses are claimed it’s a good idea to keep detailed records and receipts for everything. You may not be required by the IRS to keep all receipts, but it definitely doesn’t hurt to do so.
Business expenses can be charged to a business credit card, and receipts are easily obtained from taxis and other modes of transportation. A receipt for lodging of any amount, even at a discount motel, is almost always required.
For the trade show or conference itself, a copy of all charges, as well as a copy of the convention schedule or agenda, can help prove the event is relevant to your business.
Those receipts can 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 trade-show-related expenses, entertainment and meal costs that are “lavish and extravagant” cannot be deducted. Everyone is limited to a deduction of only 50 percent of the cost of meals.
Per day, per diem
When it comes to lodging, meals and other incidental expenses, the IRS will allow every business person 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 2014-2015 travel, the high-cost area per diem rate is $259, consisting of $172 for lodging and $52 for meals and incidental expenses. However, regardless of whether actual cost or the per diem allowance is used, generally only 50 percent of the unreimbursed meal’s cost can be deducted. But everyone traveling away from home for any length of time may deduct half of the per diem allowance rather than half of the actual cost of meals, laundry, cleaning and tips.
Bottom line, however, the advantage to using the per diem 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 all travel. The biggest disadvantage is that the per diem allowances are not particularly generous. Chances are that the actual expenses, and therefore the deductions, would be larger.
A working vacation
A business person is permitted to deduct all 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, to make a personal side trip or for other personal activities, only the business-related expenses can be deducted.
If the trip was primarily for personal reasons, such as a vacation before or after attending the event, the entire cost of the trip is usually a nondeductible personal expense. However, any expenses that are incurred while at that destination and are directly related to the business are deductible.
Changing the rules
As noted, meals and entertainment expenses are subject to a 50 percent limitation, meaning only one-half of the costs of these items can be deducted. While some (but not all) of the same deductions are now allowed for travel related to investments, new rules recently proposed by the IRS would allow convention or trade show attendees, except the self-employed, to deduct the cost of local lodging as long as it is business-related. That means the expense of staying in town while attending a local trade show, convention, seminar or meeting can be tax deductible—or ignored for tax purposes if paid for by an employer.
The IRS recently updated the procedure for taxpayers deducting travel expenses related to business and investment income, including sole proprietors. Generally, everyone can deduct the cost of traveling away from home on a business trip, including the cost of transportation, lodging, meals and incidental expenses.
The requisite business relationship test can be satisfied by showing that an attendee’s business duties and responsibilities tie in to the program or agenda of the convention. The agenda doesn’t necessarily have to deal specifically with the attendee’s duties or responsibilities; a tie-in is enough.
Travel expenses are among the most common business expense deductions. Whether planning to attend IFAI Expo 2015 in Anaheim, Calif., in October or other important business events, planning will be easier and rewards greater with the chances of Uncle Sam, in the form of updated tax laws, picking up at least part of the cost through tax deductions. Because this type of expense can also be one of the most confusing if mixing business and pleasure, however, it helps to keep your financial consultant close to help with the planning.
Mark E. Battersby, based in Ardmore, Pa., writes extensively on business, financial and tax-related topics.
Deducting employee business expenses
Keep in mind that the person or company that pays the expenses is usually the one that gets to deduct them. If an employer pays for an expense, or reimburses an employee for one, then the employer takes the deduction. If an employee pays his own expenses and doesn’t get reimbursed, then the employee will be able to take whatever deductions are allowed by the IRS.
When you reimburse an employee for travel expenses, you don’t want to be responsible for tracking and reporting it as income—and the last thing that employee expects is to owe taxes on the money! Employee travel reimbursements are usually exempt from taxation, provided you follow IRS guidelines. Check with your financial advisor for details.