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.
Instead of using actual expenses in computing allowable incidental expenses paid while away from home, employees and self-employed individuals who do not pay or incur meal expenses may use an amount computed at the rate of $3 per day. So if they attend a convention or trade show under an all-inclusive plan where meals are included, a legitimate tax deduction for incidental expenses of $3 per day is available without having to substantiate that amount.
Tax rules clearly state that all travel expenses are tax deductible if the trip to the convention or trade show was entirely business related. Suppose, however, that an attendee decides to combine that trade show attendance with a vacation.
So long as the trip is primarily for business and, while at the convention or trade show, you extended your stay for a vacation or made a non-business side trip, show-goers may still deduct their business-related expenses.
If, however, the trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a non-deductible personal expense. Naturally, you can deduct all expenses incurred while at your destination that are directly related to attendance at the trade show or convention.
Keep good records
In order to claim any tax deductions, every tool and equipment professional must be able to prove all expenses were actually paid or incurred. (In fact, the following expenses have been deemed by the IRS as particularly susceptible to abuse: 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 a legitimate tax deduction.
It's important to remember, however, that although the actual amount of the deduction can be taken from tables provided by the IRS, it remains necessary to prove the time, place and business purpose.
Writing-off education, fun and business
Under our tax rules, all that is required to deduct the expenses of attending a trade show, meeting, convention or other event, is a legitimate business purpose for attending.
Furthermore, the convention does not even have to deal specifically with your tool and equipment business; it is enough that you can reasonably prove that you've gained some business benefit by attending that event.
Imagine improving your business, furthering your education and having fun — all in one trip to a convention, trade show or meeting. Best of all, thanks to our tax rules, Uncle Sam's got you covered.
Selling your business or your wares
Most of us can attend a trade show or convention and claim the expenses as an income tax deduction. Similar tax deductions are also available where a tool and equipment distributor, jobber, supplier or his or her business, has a promotional or sales booth at a trade show. The expenses of exhibiting or selling at a trade show are also tax deductible.
Under income tax laws, it is immaterial whether the booths are set up at a show for promoting or selling your business, your products or your services. Even where the business is engaged in direct sales to the public, the expenses, for the most part, are tax deductible.
Just remember that expenses incurred in creating a unique display or booth may not qualify for an immediate income tax deduction. If that display or booth is for one-time use, and is not adaptable to other events or venues, an immediate tax deduction for property with a useful life of one year or less might be in order. Otherwise, the depreciation rules come into play.
Tax rules governing the deduction of travel, meals, lodging and entertainment, as well as the per diem deduction, are also available to every tool and equipment professional that uses trade shows, conventions and meetings to sell their products or services.
Mark Battersby is a nationally syndicated tax and financial columnist and author.