• Deducting Convention Expenses

    26 April 2017
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    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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  • Employing a Family Member

    25 August 2016
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    working family

    Employing family members in your business is one way to reduce the overall family tax bite. Doing so will allow you to shift income and possibly provide them with employment benefits.

    Strategy – Employing a Child - By employing a child, the income tax advantages include obtaining a business deduction for a reasonable salary paid to that child and reducing the self-employment income and tax of the parents (business owners) by shifting income to the child. Since the salary paid to a child is considered earned income, it is not subject to the “Kiddie Tax” rules that apply to children through age 18 and full-time students ages 19 through 23. The Kiddie Tax won’t apply at all to the 19- through 23-year-old student if his or her earned income exceeds one-half of total support, another incentive to employ a child in some situations.

    The maximum standard deduction available to the child in 2015 is $6,300. Therefore, the standard deduction eliminates all tax on that amount of income if the child is paid $6,300* in compensation. If the business is unincorporated, wages paid to the child under age 18 are not subject to social security taxes. Not only are there significant income tax advantages to employing the child, but the parent-employer may provide him or her with fringe benefits, such as group-term life insurance and qualified pension plan contributions.

    The child may also make deductible contributions to an IRA for 2015 of the lesser of earned income or $5,500. By combining the standard deduction and the maximum deductible IRA contribution, a child could earn $11,800 of wages and pay no income tax. If the child balks at contributing his or her hard-earned money to an IRA, the parent might consider giving the child part or all of the IRA contribution as a gift.

    *Actually only $5,950 needs to be paid to the child for the child to be able to claim the full $6,300 standard deduction for 2015 because a dependent may claim the sum of their earned income + $350, but no more than $6,300, as the standard deduction.

    Strategy – Employing a Spouse - Reasonable wages paid to a spouse entitles the employer-spouse to a business deduction. The wages are subject to FICA taxes, and the spouse may qualify for Social Security benefits to which he or she might not otherwise be entitled. In addition, the spouse may also be eligible to receive coverage under the business’ qualified retirement plan, and the employer-spouse may obtain a business deduction for health insurance premium payments made on behalf of the employed spouse. While maintaining the same family coverage, the business deductions could be increased by providing the spouse with family health insurance coverage as an employee. These wages are subject to income tax. Always remember, when a family member is employed in a family business, wages should equal the work performed, and that the services performed are completely necessary for the business.

    If you need more information, contact Dagley & Co., CPA at (202) 417-6640.

     

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