By Mark E. Battersby
So, you are thinking of attending the WQA Con
vention and trade show? If the expense worries you — or even if it doesn’t — why not allow Uncle Sam to pick up a portion of the tab?
Recent changes in our tax laws have eliminated the tax deduction for expenses related to attending conventions, seminars or similar meetings unless those expenses are connected with a trade or business. But, with a linkup to the water quality improvement industry, be it as an employee, employer/owner or sole proprietor of a water treatment business, Uncle Sam in the form of the Internal Revenue Service will permit a tax write-off for legitimate convention or meeting-related expenses.
Show Attendance Must Benefit Or Advance Business Interests
According to our tax law, the deduction of trade show or convention expenses depends on whether there is sufficient relationship between the dealer’s trade or business and his or her attendance at the convention or other meeting. In other words, attendance must benefit or advance the business interests of a taxpayer before a tax deduction can be claimed.
Today, expenses will not be tax deductible if incurred at events where the dealer does not participate in seminars, discussions, workshops, etc., but is merely furnished individually with video tapes of lectures on topics related to the water quality improvement industry that are to be viewed at his or her convenience. According to our lawmakers, the use of video tapes or televised material will not cause the expenses to be disallowed if the participants are required to attend a session in order to view the materials.
Employees and conventions cre-ate a number of problems — all of which have been addressed at one time or another by our lawmakers or courts. For instance, there is a blanket rule which states that there is no tax deduction for travel expenses to a convention or trade show where those expenses are reimbursed by an employer. Of course, on the other side of the coin, the amount received as reimbursement cannot be included in the employee’s gross income either.
Travel Expenses Are Not Automatically Tax Deductible
The travel expenses incurred by an employee in attending a convention held by his or her employer are not automatically tax deductible. The trade show or convention trip must be primarily for business reasons. Relevant factors include: (1) the amount of time devoted to business at the convention or trade show in comparison with the time devoted to recreational and social activities; (2) the location of the convention (e.g., was it held at a “resort” hotel); (3) the attitude of the employer holding the meeting (e.g., as an award or bonus, or for training purposes); and (4) the people invited to the convention (e.g., the employer sponsored this meeting for its employees only). If the trip is primarily one for pleasure and the employer has paid the employee’s expenses, the employee must report the payment received by him or made on his behalf as additional compensation.
Expenses incurred in attending meetings, trade shows or conventions at resort areas will not automatically be disallowed. But it must be clearly shown that the expenses were incurred for business purposes.
Which brings up the question faced by many POU/POE dealers: What if the convention trip combines business and pleasure?
When a dealer makes any trip within the United States that is primarily for business and he incidentally engages in some personal activity such as sightseeing or visiting friends, the travel expenses to and from the destination are tax deductible. However, if the purpose ofthe trip is primarily personal, the travel expenses to and from the destination are non-deductible.
Fortunately, regardless of whether the convention trip — or any trip — is primarily for business or pleasure, any local expenses incurred at the site of the convention that are directly related to the dealer’s business are tax deductible.
The bottom line, of course, on whether a given trip is made primarily for business or personal reasons depends on the individual facts and circumstances. The amount of time during the period of the trip that is spent on personal activity compared to the amount of time spent on activities directly relating to the trade show, convention or meeting is an important factor in determining whether the trip is primarily personal. If, for example, the dealer spends one week while at a trade show directly related to his or her water treatment business and subsequently spends an additional five weeks for vacation or other personal activities, the trip will be considered primarily personal in nature.
Can You Deduct Your Spouse’s Expenses?
Still on the subject of enjoyment, if a dealer’s spouse (or other member of the family) accompanies him or her to a convention, the expenses of the spouse or other family member are not tax deductible unless that person’s presence is primarily for business reasons. In one situation, a closely-held family janitorial supply corporation was able to deduct the travel expenses of the president’s wife simply because she was trained in treating the president’s diabetic condition and, therefore, served a business purpose to the corporation.
When a spouse’s presence at a convention or trade show serves no real business purpose, the non-deductible amount, generally, is the difference between the total expense and what it would have been if the dealer had taken the trip alone. In other words, the dealer can deduct transportation and lodging at the single rate for similar accommodations rather than only one-half of the double rate.
Deductible convention expenses include not only the costs of attendance such as registration fees but also transportation, meals and Even better, if the cost of entertaining a customer is deductible either as directly related entertainment or associated entertainment, the cost of entertaining the spouses of both the customer and the dealer is tax deductible as associated entertainment.
No Tax Deductions For Foreign Site Conventions
Generally, no tax deduction is allowed for the expenses incurred for attending a convention, trade show, seminar or similar meeting held outside the North American area or Jamaica. An exception is permitted if the dealer can establish that the meeting is directly related to the active conduct of his trade or business and that, after taking certain factors into account, it is “as reasonable” for the meeting to be held outside the North American area as within.
Although most convention, trade show and seminar producers are all too well aware of these restrictions, for the record, the North American area includes the United States, its possessions including the U.S. Virgin Islands, Guam and American Samoa, the Trust Territory of the Pacific Islands, Canada, Mexico, Bermuda and Barbados.
Limited Deductions For Cruise Ship Conventions
Only a limited expense deduction is permitted for the cost of attending business conventions and similar meetings on a U.S. flag cruise ship. Of course, the dealer must establish that the meeting is directly related to the water treatment industry, establish that the vessel is registered in the U.S. and that all ports of call are in the U.S. or its possessions.
However, even after all this additional work and even after attaching written information statements to the income tax return, the dealer is limited to a maximum deduction for cruise ship conventions of $2,000 ($4,000 on a joint return where both spouses attend qualifying cruise ship conventions).
Uncle Sam will, even reluctantly, help underwrite the expense of attending trade shows, conventions or seminars. But in order to enjoy this financial aid, the rules must be followed and records kept. The reward can be a sizable tax deduction, a great deal of pleasure and even a few benefits for your water treatment business.