Imagine an enjoyable and educational vacation, with Uncle Sam picking up part of the tab. That's right, everyone in the aggregate industry from the owners, managers and employees of that sand, gravel and crushed stone business - even shareholders - can legitimately claim an income-tax deduction for the expenses incurred attending trade shows, conventions and meetings.
Much has been said and written about the benefits of attending events such as February's Agg1, April's Bauma 2010, or June's Hillhead. Largely unheralded, however, are the tax-related benefits every producer attending will enjoy.
Thanks to our tax laws, the government will pick up the tab for a sizable portion of the expenses while attending meetings, trade shows or conventions - for those who follow the rules. Generally, all that is required in order to qualify for convention-related tax deductions is that the attendee be able to show, if asked, that attendance at the event benefited his or her aggregate business.
A major downside to the convention-expense deduction is that it is not available for the expenses of attending a convention or meeting related to investments or other income-producing property. On the plus side, the Internal Revenue Service recently updated the rules for deducting the expenses incurred while traveling on business.
THE TAX RULES clearly state that all travel expenses are tax deductible if the trip to the meeting or convention was entirely business related. The business-related deduction still applies even if the traveler extends the stay for vacation or other nonbusiness side trips, so long as the trip is primarily for business purposes.
On the other hand, if the trip was primarily for personal reasons such as vacation, the entire cost of the trip is a nondeductible personal expense. Naturally, one can deduct all expenses incurred while at the destination that is directly related to attending the event.
The expenses incurred while traveling to the site of that show or other event are tax deductible. These expenses include the cost of traveling by plane, train, buses or car between home and the site of the event. Also included are the expenses of taxicabs, commuter bus and airport limousines, baggage and shipping costs for samples or display materials, lodging and meals, cleaning, telephone, and even tips. And, of course all of the costs associated with attending the event itself are deductable.
The costs of meals and lodging while away from home for business travel is deductible, so long as they are not lavish or extravagant under the circumstances. Food and beverage costs incurred in the course of travel away from home fall within the scope of the tax law's limitation for meal and entertainment expenses that generally limits the deduction to 50% of such expenses.
The 50% rule is applied only after determining the amount of the otherwise allowable deductions. For instance, the portion of a convention-related meal expense that is lavish and extravagant must first be subtracted from the meal costs before the 50% reduction is applied.
RELATED EXPENSES SUCH as taxes and tips in the case of meals and other charges and room rental and parking fees in the case of entertainment expenses must be included in the total expense before applying the 50% reduction. Naturally, allowable deductions for transportation costs and other event-related expenses are not reduced.
Should an attendee's spouse, family member or other guest also attend the event, either the attendee or his or her company can deduct the guest's travel expenses. To do this, that individual must be a company employee, have a bona fide business purpose for the trip, and would otherwise be allowed to deduct the convention expenses.
In order for a bona fide business purpose to exist, the attendee must prove a real business purpose for the individual's presence. Incidental services such as typing notes or assisting in entertaining no longer are enough.
Consider quarry operator Michael who, along with his wife Mary, drove to Chicago to attend a convention. Because Mary is not an employee of Michael's aggregate business, her expenses will not be tax deductible, even if her presence serves a bona fide purpose.
Michael pays $200 per night for a double room. A single room costs $150 per night. He can deduct the total cost of driving his car to and from Chicago, but only $150 per night for his hotel room. If he uses public transportation, he can deduct only his fares.
AS AN ALTERNATIVE to the actual cost method, self-employed aggregate producers and employees can deduct a standard amount, or per-diem allowance, for their daily meals and incidental expenses.
However, even when this standard meal allowance is used, records must be maintained to prove the time, place and business purpose of any travel or convention attendance. Unfortunately, this standard meal allowance cannot be used if the traveler and the employer are related or if the traveler is more than a 10% principal in an incorporated aggregates business.
IRS-approved per-diem rates are those paid by the federal government to its workers on travel status. Instead of using the actual per-diem rates for each locale, a simplified high-low per diem, under which there is one uniform per-diem rate for all high-cost areas within the continental United States may be used.
Under the optional high-low method for travel after Sept. 30, 2009, the high-cost area per diem rate is $258 ($2 more than the previous rate), consisting of $199 for lodging and $65 for meals and incidental expenses.
A revenue procedure introduced by the IRS provides an optional method for self-employed aggregate producers and employees who are not reimbursed by their employers to compute the deductible costs incurred for business meals and incidental expenses.
THUS, WHILE ATTENDING a trade show under an all-inclusive plan where meals are included, employees and producers may claim a legitimate tax deduction for incidental expenses of $5 per day without the need of substantiating that claimed amount.
In order to claim any tax deductions, every attendee must be able to prove that the expenses were actually paid or incurred. In fact, several types of expenses, which have been deemed by the IRS as particularly susceptible to abuse, must generally be substantiated with adequate records or sufficient corroborating evidence. Those include expenses with respect to travel away from home (including meals and lodging), entertainment expenses and business gifts.
MEALS AND INCIDENTAL expenses while away from home on business, especially those related to attending a trade show or convention are legitimate tax deductions - either the actual amounts spent or the standard meal and incidentals expense rate provided by the government. Remember, although the actual amount of the deduction can be taken from tables published by the IRS, it remains necessary to prove through adequate records or sufficient corroborative evidence the time, place and business purpose of the convention-related travel.
Documentary evidence, such as receipts or paid bills, is not generally required for expenses that are less than $75. However, documentary evidence is required for lodging expenses.
The cruise ship industry is not too happy, but for years, our tax rules have permitted only a limited tax deduction for expenses incurred for attending conventions on U.S. cruise ships. The deduction is limited to $2,000 for all cruise-related convention expenses incurred during a tax year.
THIS LIMITED DEDUCTION is available only if all ports of call for the cruise ship are within the United States, or a U.S. possession; if the attendee can establish the convention was directly related to the active conduct of his or her business; and if certain specified information is included with the annual income tax return.
Imagine reaping business benefits, an education and enjoyment wrapped up in one trip. In reality, the agenda of the convention does not have to deal specifically with the sand and gravel or crushed stone business; it is enough that the attendee reasonably can be expected to gain some business benefit from attending that event. Best of all, Uncle Sam will pick up a part of the cost of attending those events.
Mark E. Battersby is a freelance writer specializing in tax and finance. For more than 25 years, his work has appeared in leading business publications. He is the author of four books and a frequent contributor to Rock Products.