Upcoming industry events such as GSX and CEDIA are a good way to gain know-how, find new suppliers and network with others in the industry. Best of all, Uncle Sam – in the form of our tax laws – is willing to pick-up the expense of attending and wining and dining potential and current clients at these events…at least for some.
As it has been in the past, security business are able to deduct all non-extravagant “ordinary and necessary expenses” incurred for business-related travel and entertainment – including attendance at conventions, meetings, shows and other events. In general, all “ordinary and necessary expenses” for business travel or attending business meetings can be deducted when the expense is directly related to the security business. With certain limitations, allowable expenses include travel, lodging, meals and associated out-of-pocket costs – so long as they are not extravagant or for personal purposes.
That said, last December’s Tax Cuts and Jobs Act (TCJA) have changed some of the parameters from the first version of this article, written back in 2017 and available at www.securityinfowatch.com/12308209. Many deductions previously claimed on personal tax returns of attendees and other security professionals were temporarily suspended by the TCJA, which also put a bigger crimp in meal and entertainment deductions.
The TCJA eliminated, at least until 2026, the deductibility of some itemized deductions of individuals. That means unreimbursed employee business expenses – including expenses for travel, lodging, meals, entertainment, continuing education and others – can no longer be claimed.
For the security business to take the deduction, it must have the expenses on its books. If the owner, a sales rep, employee or convention attendee pays an expense personally, they must submit an expense report detailing the expense, and the business must reimburse that expense in order to get the deduction.
Meals
Although the TCJA appears to have wiped out many individual deductions for show-related expenses, many remain for a security business. If, for example, business is conducted during a meal, a deduction may be available. Of course, a deduction of 50% of the cost of meals incurred while traveling away from home on business is still possible.
While the tax laws limit the business meal deduction to only 50% of the expense, not too surprisingly, those rules contain quite a few gray areas. If, for instance, the business foots the bill to take employees to a conference, the full amount of their meals is deductible by the security business. The 50% rule applies only to the business owner.
If, on the other hand, a meal immediately precedes or follows a substantial business meeting, 50% of the cost can be deducted – so long as it was not “lavish or extravagant.”
If a security business provides meals in a hospitality suite at a convention with the clear intent of generating business, the cost is usually deductible. Other outside meals purely for goodwill purposes may not qualify as “directly-related” to the business.
Until the IRS issues more guidance, the specific tax treatment for many of these meals remains open to interpretation.
Because entertainment-related meals are now treated differently from customer or client business meals, it may be necessary to account for each separately. For example, client or customer business meals are deductible only if they are not lavish or extravagant and only if the taxpayer – or a representative – is present. Because entertainment expenditures are no longer deductible, it is necessary to conduct business with the client or customer in order for a meal to be deductible.
Outside the U.S.
Any security business clearing the hurdles created by our lawmakers, with the proof to support it, may deduct the entire cost of sending attendees to a convention, show or conference (subject to the usual 50% limit on meals) and minus any attendees’ personal expenses; however, the rules are tighter if the event is held outside North America.
In order to deduct the expense of attending a trade show or convention held outside the North American area, the business must show that the event is directly related to the active conduct of the security business operation, and it is as reasonable for the event to be held outside the North American area.
Receipts
While receipts for expenses of $75 or less are not required, whenever business expenses are claimed it is usually a good idea to keep detailed records and receipts for everything. They often serve as a reminder of a deductible expense, especially where the payment was in cash.
When attending a show, meeting or conference, a copy of all charges – as well as a copy of the convention schedule/agenda – can help prove its relevance to the security business. Also keep in mind that while there is no overall dollar limit on the amount that can be deducted for the expenses incurred attending a trade show, costs that are “lavish and extravagant” cannot be deducted.
Mixing Business and Vacation
Generally, taking extra days for a mini-vacation will not result in the loss of business travel or show-attendance deductions. Tax rules permit a deduction for the total travel costs when the main purpose of the trip is business or attending a convention, trade show or conference. When combining a vacation or side-trip with business travel or convention attendance, a good rule is to spend more days on business than on pleasure. When mixing business with pleasure, round-trip travel is fully deductible if more days are spent on business than on pleasure. Under the tax rules, former and present, days spent traveling are usually considered business days. Obviously, lodging expenses cannot be deducted for personal days, but purchasing a reduced-fare ticket requiring stay-over days, means lodging costs for stay-over days is permissible.
If friends, family or other guests accompany an attendee to a show, convention or conference, only the business-related portion of the expenses can be deducted. In other words, deducting the cost of the family’s hotel suite is a no-no. Instead, the deduction should be limited to the cost of a single room, an amount readily available from the hotel.
Generally, the travel expenses of someone accompanying an attendee can be deducted if that person: Is an employee of the business; Has a bona fide business purpose for the travel, and would otherwise be allowed to deduct the travel expenses. Incidental services, such as keeping notes or assisting in entertaining customers, are not enough to make the expenses deductible.
When traveling by car, either the specific cost or a standard mileage deduction for the year of travel can be used. Currently, the standard rate for use of a car, van, pick-up or van in 2019 is 58 cents per mile for business miles driven, up from 54.5 cents in 2018.
Additional guidance is available from the IRS in “Publication 463: Travel, Entertainment, Gift and Car Expenses” – available at www.irs.gov/formspubs. Owners, shareholders or managers of any security business needing help with these confusing tax rules should seek professional advice.
Mark E. Battersby is a freelance writer that specializes in tax-related issues. Email him at [email protected].
