Imagine taking an enjoyable and educational vacation, and that Uncle Sam will pick up the tab.
That's right. Every professional tool and equipment worker, whether business owner or employee, (even shareholders), can legitimately claim an income tax deduction for a portion of expenses incurred while attending trade shows (like AAPEX), conventions and meetings.
Usually all that is required to qualify for convention-related tax deductions is that you be able to show that attendance benefited your business.
Deduct the essentials
Tax-deductible travel expenses include such expenditures as the cost of traveling by plane, train, bus or car between your home and the site of the meeting, the expenses of taxis, commuter buses and airport limousines, baggage and shipping costs for samples or display materials, lodging, meals, cleaning, telephone service and even tips.
And, of course, the fees to attend the convention itself are deductible.
Unfortunately, when it comes to meals, tax rules contain quite a few restrictions — as well as a number of loopholes. Generally, expenses for meals include all amounts spent for food, beverages, taxes and related tips. The tax deduction for meals is labeled by the IRS as "entertainment," however, and is generally limited to 50 percent of the amount actually spent.
Under tax rules, distributors attending a trade show or convention that leads them away from home overnight are permitted to use either the actual cost of the meals or a standard amount to compute the tax deduction for convention-related meals. If you, as an individual, are reimbursed for those expenses, how you apply the 50 percent limit depends on whether your employer's reimbursement plan was accountable or non-accountable.
Bringing guests in tow
Should any attendee's spouse, family members or others accompany them to a trade show or convention, either the attendee or his or her tool and equipment distribution business can deduct their travel expenses. But this rule generally applies only if that individual: a) is your employee; b) has a bona fide business purpose for the trip; or c) would otherwise be allowed to deduct the convention expenses.
In order for a bona fide business purpose to exist, the distributor must prove a real business-related purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers is no longer enough.
An alternative to the actual cost method, both self-employed business owners and employees can deduct a standard amount — a per diem allowance — for their daily meals and incidental expenses while attending a convention.
When this standard meal allowance is used, records must be maintained proving the time, place and business purpose of any travel or convention attendance. Unfortunately, if your employer is related or is an incorporated tool and equipment business in which you are more than a 10-percent owner, the standard meal allowance cannot be used.
The IRS recently updated the rules for deducting expenses incurred while traveling on business. Among other stipulations, the revised guidelines contain an optional method under which both self-employed tool and equipment distributors, and company employees who are not reimbursed, can utilize the per diem allowances.
The new procedure also covers incidental expenses only if no meal costs are paid or incurred while traveling.
Incidental expenses refers to fees and tips paid to porters, baggage carriers, bellhops, hotel maids, transportation between places of lodging or business and places where the convention, trade show or meeting is held; or wherever meals are taken.
Repair shops can now take full advantage of a first-year tax write-off for newly acquired equipment.
Keep your mind open to new and better ways to do business.