Imagine an enjoyable and educational vacation, with Uncle Sam – in the form of our tax laws – picking up part of the tab. That’s right, every security dealer and integrator, including the owners, managers and employees of that security business – even someone who is a shareholder/employee – can legitimately claim an income tax deduction for the expenses of attending trade shows, conventions and meetings.
Thanks to our 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, in order to qualify for convention-related tax deductions, all that is required is that the attendee be able to show, if asked, that attendance at events such as ISC West, ASIS or other trade shows, conventions or meeting was business-related. Recently the IRS went even further, allowing deductions for lodging when the event-related travel is only local.
Naturally, when it comes to events for investment, political, social, or other purposes unrelated to business, only a limited expense deduction may be available.
What’s Tax Deductibe?
Deductions are allowed for all of the ordinary and necessary expenses paid or incurred in carrying on a trade or business – which means that every security dealer and integrator can deduct the expenses of attending a convention. All that is required is a bona fide business purpose.
Among the expenses that can be claimed as tax deductions when attending a conference are costs such as:
- Conference or show registration fees;
- Standard mileage for driving to the meeting, trade show or convention;
- Air, bus or train fare;
- Lodging, including tips;
- 50 percent of meal expenses; and
- 50 percent of the cost of entertaining customers or clients.
Unfortunately, if a spouse, dependent, or other individual accompanies an attendee to a convenition or on a business trip, that individual’s travel expenses are not usually tax deductible. Of course, if a bona fide business purpose exists for the individual’s presence and can be proven, a tax deduction might result. Incidental services, such as keeping notes or assisting in entertaining customers, are not enough to make the expenses deductible.
If a business associate, such as a current or prospective customer, supplier, employee, agent, partner, or professional advisor, travels with an attendee and has a bona fide business purpose for the travel and would otherwise be allowed to deduct the travel expenses, their expenses can be deducted.
Consider our hypothetical security professional, Jerry:
Jerry drives to Chicago to attend a business meeting and takes his wife, Linda, with him. Although Linda occasionally keeps notes, performs similar services, and accompanies Jerry to luncheons and dinners, she is not Jerry’s employee. The performance of these services is not enough to establish her presence on the trip was necessary to the conduct of Jerry’s business and her expenses are not deductible.
However, regardless of who accompanies him, Jerry 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 to and from Chicago, but only $149 a day for his hotel room. If he uses public transportation, he can deduct only his fare.
Those Dreaded Receipts
Whenever business expenses are claimed, it is a good idea to keep detailed records and receipts for everything. Business expense can be charged to a business credit card, receipts obtained from taxi drivers and other modes of transportation and make sure to keep a detailed copy of your hotel bill. For the show, meeting or conference, keep a copy of all charges, as well as a copy of the convention schedule/agenda, which can help prove the event is relevant to the security business.
Receipts for expenses of $75 or less are not required; however, a receipt is needed for lodging of any amount, even at a Motel 6. Although a security professional may not be required to keep all receipts, it doesn’t hurt to do so anyway – they often serve as a reminder of a deductible expense, especially where the payment was in cash.
Also, keep in mind that while there is no overall dollar limit on the amount that can be deducted for show or event-related expenses, entertainment and meal costs that are “lavish and extravagant” cannot be deducted. Additionally, everyone is limited to a deduction of only 50 percent of the cost of meals.
The Per Diem Standard Deduction
When it comes to lodging, meals and other incidental expenses, the IRS will allow every security dealer and integrator 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 2017 travel, the high-cost area per diem rate is $282 (up from $275 in FY 2016), consisting of $214 for lodging and $68 for meals and incidental expenses (M&IE). The per diem for all other localities is $189 (up from $185 in FY 2016), consisting of $132 for lodging and $57 for M&IE.
When it comes to the 50 percent limit on meals, everyone traveling away from home for any length of time may deduct half of the per diem allowance or “Standard Meal Allowance” (SMA), rather than half of the actual cost of meals, laundry, cleaning and tips.
Bottom-line is the advantage of using the standard meal allowance is that records do not have to be kept of actual meal expenses, although records do have to be kept to prove the time, place and business purpose of the travel. The biggest disadvantage is that the standard meal allowances are not very generous. Chances are that the actual expenses – and therefore the deductions – would be larger.
Vacation Time
Every security dealer and integrator can 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.
Naturally, if the trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense; however, any expenses incurred while at that destination that are directly related to the business are, of course, deductible.
In the eyes of the IRS, a trip to a resort or on a cruise ship may be a vacation -- even one advertised as primarily for business. The scheduling of incidental business activities, such as viewing videotapes or attending lectures dealing with general subjects, rarely changes what is really a vacation into a business trip.
It should also be noted that no tax deduction is available for the expenses of attending a convention, seminar or similar meeting held outside the North American area unless it is “reasonable” to hold it outside that area.
Final Tips
As mentioned, meals and entertainment expenses are subject to a 50 percent limitation, meaning only one-half of the costs of these items can be claimed as a tax deduction. New rules recently proposed by the IRS now allow convention or trade show attendees – except those who are self-employed – to deduct the cost of local lodging so 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. A self-employed security professional can, of course, deduct travel away from home base.
The requisite business relationship test can be satisfied by showing that an attendee’s business duties and responsibilities tie into the event’s program or agenda. The agenda does not 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. Because this type of expense is also one of the most confusing, it may be prudent to seek a professional guide through the tax rules.
Mark E. Battersby is a freelance writer that specializes in tax-related issues. Please email him at [email protected].
