Build Business, Enjoy Yourself, and Write It Off
Imagine an enjoyable — and educational — vacation, but with Uncle Sam picking up part of the tab. Every racquet sports business, owner, employees, 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.
Of course, there are restrictions. A major downside is that the deduction does not apply to the expenses of attending a convention or meeting in connection with investments, financial planning or other income-producing property. But usually all that is required to qualify for convention-related tax deductions is that you be able to show, if asked, that attendance at the event benefited your business.
If you follow the rules, the Internal Revenue Service will pick up the tab for a sizable portion of your expenses. The expenses of selling at a show or event are also deductible as legitimate sales expenses.
Tax-deductible expenses include the cost of traveling by plane, train, bus, or car between your home and the event site. Also included are expenses for taxis, commuter buses, and airport limousines, baggage and shipping costs for samples or display materials, lodging and meals, cleaning, telephone, and even tips. And, don’t forget the costs associated with attending the convention itself.
Generally, expenses for meals include all amounts spent for food, beverages, taxes, and related tips. That tax deduction for meals is considered “entertainment,” however, and is limited to 50 percent of the amount actually spent. To compute the convention-related meals expense, an attendee can use either the actual cost or a standard IRS amount. If you, as an individual, are reimbursed for those expenses, how you apply the 50 percent limit depends on whether your employer’s reimbursement plan was accountable or nonaccountable.
If a family member or other person accompanies you, neither you nor the tennis business can deduct their travel expenses unless that individual 1) is your employee; 2) has a bona-fide business purpose for the trip; or 3) would otherwise be allowed to deduct the convention expenses. 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 customers, are no longer enough.
Consider a tennis business owner, John, who, along with his wife, Mary, drove to Palm Springs to attend a convention. Because Mary is not John’s employee and even if her presence serves a bona-fide purpose, her expenses will not be tax deductible. John pays $165 per night for a double room. A single room costs $135 per night. He can deduct the total cost of driving his car to and from Palm Springs, but only $135 per night for his hotel room. If he uses public transportation, he can deduct only his fares.
As mentioned, as an alternative to the actual cost method, both self-employed business owners and employees can deduct a standard amount for their daily meals and incidental expenses. However, even when this standard allowance is used, records must be kept to prove the time, place, and business purpose of any travel or convention attendance. Unfortunately, if your employer is related or is an incorporated business in which you are more than a 10 percent owner, the standard meal allowance can’t be used.
The standard meal allowance is the official federal Meals and Incidental Expense (M&IE) rate. During 2003 and into 2004, the standard rate for meals varied between $35 and $45 per day for most areas of the U.S. Maximum per-diem rates, including lodging, varied between $125 and $204 per day in 2003. Whether you use the standard M&IE rate or not, make sure you back up all your deductions with receipts and other records.
The expenses of exhibiting or actually selling at a trade show or other event are also tax deductible business expenses. Even where the business is engaged in direct sales to the public, the expenses, for the most part, are tax deductible.
However, expenses incurred in creating a unique display or booth may not qualify for an immediate income tax deduction. But if that display or booth is for one-time use, 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, depreciation rules come into play.
What if you decide to combine the convention with a vacation? If the trip was “primarily” for business and, while at the event, you extended your stay for a vacation, made a nonbusiness side trip, or had other nonbusiness activities, you may still deduct your business-related travel expenses. If, however, the trip was primarily for personal reasons, the entire cost of the trip is a nondeductible personal expense. Naturally, you can deduct any expenses you have while at your destination that are directly related to attendance at the trade show or convention.
In reality, the agenda of the convention does not have to deal specifically with your business. It is enough that you can reasonably be expected to gain some business benefit from attending or exhibiting.
So when the USTA, PTR, USPTA, ASBA, TIA, or other industry groups get together, either locally or nationally, consider all you stand to gain by attending the events, with the added incentive that it’s a legitimate tax deduction.
See all articles by Mark E. Battersby
About the Author
Mark E. Battersby is a tax advisor and author in Ardmore, Pa.