Tuesday, July 28, 2015
HOW TO ENJOY A TAX DEDUCTIBLE VACATION
Here is a summer-appropriate post taken from my THE NEW SCHEDULE C NOTEBOOK.
One of the reasons I am called the “Wandering” Tax Pro is because once the tax filing season ends I enjoy travel via all methods – car, bus, plane, ship and train (not necessarily in that order).
Over the past 30 years my annual travel itinerary has often included two totally tax-deductible domestic vacations. I would attend the National Conference of the National Association of Tax Professionals (NATP) and the Annual Convention of the National Society of Tax Professionals (NSTP), held each year in a different US city. I have visited Alexandria, Anaheim, Arlington, Atlanta, Austin, Boston, Corpus Christi, Las Vegas, Minneapolis, New Orleans, Orlando, Reno, Sans Antonio, Diego, Francisco, and Juan, Washington DC, and other locations as a registrant of these two annual events, and deducted my travel expenses.
You can deduct expenses that are “ordinary and necessary” for your business. An “ordinary” expense is one that is common and accepted in your specific trade or profession and a “necessary” expense is one that is helpful and appropriate.
One “ordinary and necessary” business expense for which you can claim a tax deduction is the cost of education that is (1) expressly required by an employer, by law, or by government regulation, or (2) maintains or improves skills required in your current trade or business. If a conference falls under this category the associated registration and travel expenses are deductible.
You must show that your attendance at the conference or convention benefits your business. The convention agenda or program generally shows the purpose of the convention.
Deductible expenses include –
• The registration fee and any related books or materials.
• Round-trip airfare, train fare, or bus fare at cost, or the standard mileage allowance for business travel if you drive (or, as an alternative, a percentage of the total actual costs of operating your car) and related red cap tips.
• Taxi fares to and from the airport, train or bus station, to and from your hotel, and to and from other business locations while away.
• Hotel or motel lodging expenses, including tips to bellman and maids and the cost of laundry services.
• 50% of meals.
After I deduct all my travel expenses, I often save enough in taxes to cover the registration fee and some of the travel expenses! I get a free quality education, which benefits my practice, and I save on the actual cost of the trip.
If you are travelling with your family, only your expenses are deductible. However airlines often offer discounts for accompanying family members, and a hotel room is generally the same price whether regardless of the number of people in the room. You can deduct what it would cost if you were travelling alone. There are special rules if your spouse also works for your business.
You cannot deduct auxiliary sightseeing expenses while at the conference or convention, such as guided tours or travel to and from attractions, museums, sporting events, theatres, etc (unless you were attending with a client or colleague and the activity qualified as deductible business entertaining).
As with any business expense you must keep detailed records and receipts. Use a credit card for all meals, get receipts from taxi drivers, and keep a copy of the detailed hotel bill in addition to the charge card receipt. And be sure to save the conference or convention agenda/schedule to prove its relevance to your business.
Just as with business use of your automobile and the standard mileage allowance, the IRS allows you to deduct either actual out of pocket expenses or claim a federal “per diem allowance” that is determined by the General Services Administration each year based the location of the trip. If you claim the per diem allowance you do not have to save receipts for actual expenses. There is a per diem rate for lodging and one for meals and “incidental” expenses. However sole proprietors cannot use the per diem rate for lodging; they must deduct actual lodging expenses.
The per diem rate for meals and incidental expenses includes tips given to porters, baggage carriers, bellhops, hotel maids (the “incidental” expenses) – so the actual out of pocket for these incidentals are not deductible if you claim the per diem. On the first and last day of a business trip you claim 75% of the per diem amount, unless you can show you leave before breakfast on the first day and return after dinner on the last.
The per diem rates are based on the city where you “lay your head” at night. If your business meetings are in New York City, but you stay overnight at a hotel in New Jersey to get a lower room rate, you would use the New Jersey location to determine the appropriate per diem amount.
If you do not incur meal experiences while traveling you can still use a per diem amount for incidental expenses, which is currently $5.00 per day regardless of the location.
You can decide whether to deduct the GSA meals and incidental per diem rate or actual expenses on a trip by trip basis, but you must use the same method for all days within any single business trip. You can use the actual expenses when attending a conference in New York City in May and the per diem rate for an August convention in Las Vegas.
If you are claiming actual meal costs you must have documentary evidence, such as a credit card receipt or an itemized hotel bill (if a meal is charged to your room), for any expense that is $75 or more.
For business meals and entertaining, whether away from home overnight for a conference or convention or any other business purpose or during the course of your normal business day, you also must record the time and place, the name(s) and “relationship” (1040 client, business owner or “CFO of XYZ”) of any person(s) you are entertaining or with whom you are dining, and the business purpose or business discussion (“NATP Annual Conference”, “business proposal”, “tax planning”, “audit preparation”). The back of your credit card receipt for the meal or drinks is a good place to record this information.
Make sure to schedule your trip so that it remains 100% business. If registration begins on Sunday, with activities that begin on Monday and end Thursday, you would want to arrive on Saturday or Sunday and leave on Friday. This way you have no “personal days”. Schedule your time so you spend at least four hours each day participating in a conference event or activity. Keep time logs or sign-in information to prove your participation in conference activities.
Travel that is extended to get a reduced airfare (such as a Saturday or Sunday night stay-over for domestic travel) is allowed, even though there is no business activity on the extra day, if the extra cost of the stay-over is less than or equal to your airfare savings (IRS Private Letter Ruling 9237014).
So you have always wanted to visit San Francisco. Find a conference or convention related to your business that is being held there and take a tax-deductible vacation!
The cost of THE NEW SCHEDULE C NOTEBOOK is normally $7.95. I am offering a special summer discount – for all orders postmarked by August 31st the cost is only $5.30 – a 1/3 discount!
Send your check or money order for $5.30, payable to Taxes and Accounting, Inc, to –
SUMMER SPECIAL OFFER
TAXES AND ACCOUNTING, INC
POST OFFICE BOX A
HAWLEY NJ 18428