Profiting from trade shows

By and |  January 24, 2014

Learn what can and cannot be tax deductible when you attend or exhibit at an event such as ConExpo-Con/Agg.

Every owner, manager and employee of a stone, sand or gravel business has long been allowed to 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 those events – if the rules are followed.

Because our tax rules allow a deduction for all of the ordinary and necessary expenses paid or incurred in carrying on a trade or business, every aggregates producer can deduct the travel expenses of attending a convention if it can be shown that attendance benefits the business. The agenda does not have to deal specifically with anyone’s official duties and responsibilities; it is enough if the agenda shows attendance was for bona fide business purposes.

Business vs. personal
While all travel expenses can be deducted if the trip is entirely business related, if a 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 travel expenses can be deducted.

If the trip was primarily personal, such as a vacation, the entire cost of the trip is a non-deductible personal expense. Of course, any expenses paid or incurred while at the destination that directly relate to the aggregates business are tax deductible.

These tax deductible expenses include the travel costs for getting to and from the show, convention, meeting or other business destination, and any business-related expenses while at the business destination. Unfortunately, if a spouse, dependent or other individual accompanies an attendee on the trip, that individual’s travel expenses usually cannot be deducted.

A bona fide business purpose exists if a real business purpose for the individual’s presence can be proven. In general, the travel expenses of someone accompanying an attendee are deductible if that person:
■ is an employee of the business;
■ has a bona fide business purpose for the trip; and/or
■ would otherwise be allowed to deduct the travel expenses.

Deductions, records and receipts
The following expenses are usually tax deductible:
■ Conference or trade show registration fees.
■ Standard mileage for a vehicle driven to the meeting, trade show or convention.
■ Air, bus or train fare.
■ Lodging, including tips.
■ 50 percent of meal expenses.
■ 50 percent of the cost of entertaining customers or clients.

Cash receipts often serve as a reminder for a deductible expense, such as the taxi ride. Other business expenses charged to a corporate credit card will be itemized on your credit card bill. Keep receipts obtained from transportation, and a detailed copy of the hotel bill is usually a necessity. For the event itself, a copy of charges, as well as a copy of the convention schedule/agenda can be used to prove it is relevant to the operation of the aggregates business.

The bottom line is that receipts for expenses of $75 or less are not required under our tax laws. Thus, if you take a taxi from your hotel to the site of a trade show or convention for a cost of $12, no receipt is required. One exception: As mentioned, a receipt for lodging of any amount, even a budget motel, is almost always needed in the event of a tax audit.

The tax rules do not place an overall dollar limit on the deduction for travel and entertainment expenses, including convention or trade show attendance. However, meal and entertainment costs that are “lavish and extravagant” cannot be deducted. Even worse, the tax law does not define “lavish and extravagant.” Thus, it’s up to the aggregates producer or business (and the almost-mandatory tax advisor) to decide whether costs are “too much” before deducting them.

An easier alternative
Although receipts may not always be necessary, every aggregates producer must substantiate the amount, time, place and business purpose of expenses paid or incurred when traveling away from home on business. They have the option of keeping the actual records or using an IRS-provided flat deduction or allowance. The IRS’s per diem allowance can be used to substantiate the amount of convention expenses for lodging, meals and incidental expenses.

The advantage to using the IRS’s so-called “standard” or per diem allowance is that records of actual expenses are not needed, although records should be kept to prove the time, place and business purpose of the travel. For travel after Oct. 1, 2013, the maximum per diem allowance is $251, with a per diem allowance of $170 for lodging and $52 for meals and incidental expenses (M&IE).

The biggest disadvantage to the standard per diem allowances is they are not very generous. Chances are that the actual expenses – and therefore the deductions – would be larger with a regular deduction. Unfortunately, if your employer is related to you or is an incorporated aggregates business in which you are more than a 10 percent principal, the standard meal allowance can’t be used.

Tax deductions on a diet
Regardless of whether actual costs or the per diem method is used, as a general rule, only 50 percent of unreimbursed meal costs can be deducted. If an employee is reimbursed for the cost of meals, how the 50 percent limit is applied depends on whether the employer’s reimbursement plan was accountable or non-accountable. If there is no reimbursement, the 50 percent limit applies regardless of whether the unreimbursed meal expense is for business travel or business entertainment.

The actual cost of meals can be used to figure the amount of the expense before reimbursement and application of the 50 percent deduction limit. If this method is used, records must be kept of actual costs.

The “Incidental Expenses Only” method is an option that can be used for deducting only incidental expenses, instead of actual cost. The amount of the deduction is only $5 a day, and can be used only if no meal expenses were paid or incurred. Thus, this method can not be used on any day that the standard meal allowance is used. What’s more, this method is subject to proration for partial days.

Generally, managers, employees – and especially partners, shareholders and the owners – of aggregate businesses can deduct the cost of traveling away from home on any business trip. This includes the cost of convention-related transportation, lodging, meals and incidental expenses. Meal and entertainment expenses are subject to a 50 percent limitation.

New rules recently proposed by the IRS would allow those attending conventions or trade shows locally, except the self-employed, to deduct the cost of local lodging as 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 – or ignored for tax purposes if paid for by an employer.

Travel expenses are among the most common business expense deductions. However, this type of expense is also one of the most confusing. Obviously, familiarity with the tax rules will make it easier to plan any business trip, especially one combining business with vacation, and to reap the reward of a legitimate tax deduction.

Take note
The expense of staying in town while attending a local trade show, convention, seminar or meeting can be tax deductible — or ignored for tax purposes if paid for by an employer.

Mark E. Battersby is a freelance writer who has specialized in taxes and finance for the last 25 years.

This article is tagged with , and posted in Features

About the Author:

Comments are closed