For the most part, an individual’s travel expenses from attending conventions or seminars can be deducted (provided that attendance benefits the taxpayer’s trade or business). But, the following travel expenses cannot be deducted: family members’ travel expenses, or expenses from attending investment, political, social or other types of meetings not related to the taxpayer’s trade or business. The entire cost of transportation and lodging, plus 50% of the meal expenses, is deductible for meetings held within the North American area. For a detailed list of areas within North America, please consult IRS Publication 463.
Meetings Outside the North American Area – Deducting travel expenses for a convention or meeting outside the North American area has requirements:
- The meeting must be directly related to the taxpayer’s trade or business (whereas meetings within the North American area need only benefit the taxpayer’s trade or business), and
- It must be reasonable to hold the meeting outside the North American area. There is no specific definition of “reasonable” for this purpose, which places the burden of proof on the taxpayer. Considerations include the meeting’s purpose and activities and the location of the meeting sponsors’ homes.
Even if the above requirements are met, the amount of deduction allowed depends upon the primary purpose of the trip and on the time spent on nonbusiness activities:
(1) If the entire time is devoted to business, all ordinary and necessary travel expenses are deductible.
(2) If the travel is primarily for vacation and only a few hours are spent attending professional seminars, none of the expenses incurred in traveling to and from the business location are deductible.
(3) If, during a business trip, personal activities take place at, near or beyond the business destination, then the expenses incurred in traveling to and from the business location have to be appropriately allocated between the business and nonbusiness expenses.
(4) If the travel is for a period of one week or less, or if less than 25% of the total time is spent on nonbusiness activities (on a day-by-day basis), then the travel deductions are treated the same as they would be for travel within the North American area.
Meetings Held On Cruise Ships – When a convention or meeting is held on a cruise ship and is directly related to a taxpayer’s trade or business, the taxpayer is limited to $2,000 per year in deductions for expenses from attending such conventions, seminars, or similar meetings. All ships that sail are considered cruise ships. The following rules also apply:
- The cruise ship must be registered in the United States.
- All of the cruise ship’s ports of call must be in the United States or its possessions.
If you have questions related to the deductibility of expenses from conventions and meetings or from foreign travel, please give Dagley & Co. a call.
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If you and/or your employees travel often, you know those costs add up quickly. The good news is: A business deduction is allowed for lodging when a taxpayer travels away from home (aka his or her “tax home”). A tax home is generally the location, such as a city or metropolitan area, of a taxpayer’s main place of business (not necessarily the place where he/she lives).
The traveling away from his or her tax home condition creates problems for individuals attending conferences and training sessions within their tax homes that include extended-hour events that preclude traveling back home between the days of the events.
To alleviate this problem, IRS proposed regulations, upon which taxpayers may rely, permit certain non-away-from-home lodging expenses to be treated as deductible business expenses by employers and tax-free working condition fringe benefits or accountable-plan reimbursements to employees. Under the proposed regulations, local lodging expenses are treated as ordinary and necessary business expenses if all of these conditions are met:
(1) The lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function.
(2) The lodging is for a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter.
(3) If the individual is an employee, his or her employer requires him or her to remain at the activity or function overnight.
(4) The lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation, or benefit.
Example: A business conducts business-related sales training sessions at a hotel and conference center near its main office. The employer requires both its field and in-house sales force to attend the training and stay at the hotel overnight for the bona fide purpose of facilitating the training. If the company pays the lodging costs directly to the hotel, the stay is a working condition fringe benefit to all attendees (even to employees who live in the area who are not on travel status) and the company may deduct the cost as an ordinary and necessary business expense. If the employees pay for the lodging costs and are reimbursed by the company, the reimbursement is of the accountable plan variety and is tax-free to the employees and deductible by the company as an ordinary and necessary business expense.
Example: If Warren, a locally based, self-employed consultant, were required by a company to attend the sessions and stay at the hotel, he could deduct the expense if he paid for it himself or exclude the expense if he were reimbursed by the company after accounting for it in full for his costs.
Substantiation requirements – Generally lodging expenses are deductible only if they are substantiated in full (record of time, place, amount, and business purpose, plus paid bills or receipts). The expenses can’t be substantiated using the lodging component of the federal per-diem rate.
If you have questions about the deduction and substantiation of business-related lodging expenses, please get in touch with us at Dagley & Co. You’ll find our contact information at the bottom of this page.
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