Although the cost of just about everything has gone up, attending a convention, meeting, or trade show need not be that expensive—thanks to the many income tax deductions available.
That’s right, Uncle Sam will allow all electrical contractors to write off or deduct many expenses incurred while attending an industry trade show, meeting, or convention—if they follow the tax law rules.
Tax laws permit a tax deduction for all ordinary and necessary traveling expenses, including convention attendance, while away from home. Of course, electrical contractors are not “away from home” unless their duties require them to be away from the general area of their tax homes for much longer than an ordinary workday, but you get the idea.
An employee’s performance of services is considered to be a trade or business under our tax rules. Thus, an employee’s convention-related expenses are also generally deductible. However, as a practical matter, employees generally do not claim these convention expenses on their tax returns because the Internal Revenue Service (IRS) instructs employers not to report the reimbursement amount in the employee’s income.
Imagine, the silent partner of every electrical contractor, the IRS, is willing to pick up part of the tab for attending any business-related convention, trade show, or meeting. It does this by allowing every electrical contractor and its employees an income tax deduction for all convention-related expenses.
Deductible travel expenses include those incurred in attending a convention, so long as that meeting is business related, even though the individual attending may be an employee. The fact that an employee uses vacation or leave time to attend the convention, or attends voluntarily, will not necessarily negate the deduction.
These limits and restrictions aside, the following expenses incurred while attending a convention, trade show, meeting, or seminar are deductible: travel and transportation; meals and lodging, a reasonable amount for baggage, necessary supplies, and display materials; sample rooms; telephone and fax services; public stenographers; and maintaining and operating a car for business purposes. In addition, don’t forget the actual cost of the meeting itself.
Under our tax rules, an electrical contractor combining attendance at a trade show with a vacation may still claim the convention-related expenses as a tax deduction. Personal vacation expenses cannot, of course, be claimed as a tax deduction; the convention or trade show must be the principal or main purpose of the trip.
Unfortunately, today’s tax rules do not allow travel expenses for spouses, dependents, or other individuals accompanying the electrical contractor on a business trip, convention-related or not. An exception to this rule arises if the person is a legitimate employee of the business or of the person paying or reimbursing the expenses. That spouse’s or other person’s travel must also serve a bona fide business purpose and their expenses must otherwise be tax deductible.
In order to claim any tax deduction, convention-related or not, a company must be able to prove that its expenses were, in fact, paid or incurred. This is often easier said than done.
The following expenses, which the IRS deems particularly susceptible to abuse, must generally be substantiated by adequate records or sufficient evidence corroborating the company’s own statement: Expenses with respect to travel away from home (including meals and lodging); and entertainment expenses, business gifts, and expenses involving so-called “listed property” (cars and computers).
These expenses must all be substantiated, which involves documenting the dollar amount, time, place, and business purpose. For entertainment and gift expenses, the business relationship of the person being entertained or receiving the gift must also be substantiated.
Fortunately, a contemporaneous log or diary is not required. However, a record of the elements of the expenses (or use of any “listed” property) made at or near the time of the expenditure or use, supported by sufficient documentary evidence, has a high degree of creditability, should the IRS come calling.
The IRS generally accepts two methods of tax deductions for convention-related expenses. The first is the accountable plan method, which allows electrical contractors to forgo IRS reporting and withholding rules. Essentially, employees who incur convention-related expenses and substantiate them within 60 days may receive reimbursement—even electrical contractors who may be employees of their own, closely held contracting business.
The second method of deducting convention expenses is the per diem method in which firms deduct a standard daily expense rate corresponding to the location of the meeting or convention. The General Services Administration (GSA) publishes an annual list of per diem rates, which ranged from $115 to $185 in 1999 (2000 rates won’t be available until late fall). Specifically, lodging has a low of $81 and a high of $143; meals and incidental expenses range from $34 to $42.
Using per diem allowances simplifies record keeping; employees are only required to document when and where they traveled, and for what purpose. They do not have to keep every receipt or otherwise account for each expenditure. Of course, non-per diem employees and self-employed electrical contractors must still keep lodging receipts.
The IRS, in doing its part in 1995 “to make government work better and cost less,” recently made a significant change in its reporting requirements for convention and business-travel expenses. Today, expenses of less than $75 no longer require a receipt. Previously, receipts were required for expenses of $25 or higher. However, all lodging expenses still require receipts.
This change should greatly reduce firms’ paperwork, because they will no longer have to keep little paper receipts for every meal, taxi ride, or other convention-related expense. It also makes deducting those convention, trade show, meeting, or seminar expenses a lot easier and more rewarding than ever.
BATTERSBY is a freelance financial writer, based in Ardmore, Pa. He can be reached at (215) 747-6684 or by e-mail at Mbattersby@MCIMail.com.