A past blog post explained the rules for deducting domestic and foreign travel. This post will focus on claiming deductions for travel expenses of a spouse who accompanies the business owner on travel. The IRS is very skeptical of allowing travel expenses of an accompanying spouse because it believes the spouse’s travel isn’t really for business purposes. The IRS believes the spouse tags along for personal reasons such as offering the business owner companionship or it is a chance for the spouse to take a vacation.
The IRS disallows deductions for amounts paid with respect to a spouse, dependent, or other person accompanying a business owner on business travel unless:
- The accompanying person is an employee of the taxpayer
- The travel of the accompanying person is for a bona fide business purpose
- The travel expenses would otherwise be deductible by the accompanying person (see post on domestic and foreign travel)
The term other persons would include friends and other family members. The term other person does not include a business associate whose travel expenses are for a bona fide purpose. Examples would include customers, suppliers, partners, professional advisors, etc.
The first requirement is fairly straight forward. The spouse must be employed by the taxpayer. The spouse must receive a W-2, payroll taxes should be paid, and payroll records should be kept.
The challenge lies in the second requirement—bona fide business purpose. The presence of the spouse must be necessary, not merely helpful, for a business purpose.
Examples of a bona fide business purpose where a strong argument that the spouse’s work is necessary include:
- The spouse acts as a translator for foreign speaking meeting participants
- The spouse acts as a professional advisor (CPA or attorney) for the business owner
- The meeting is held with participants with whom the spouse has had business dealings and the spouse can help the business owner negotiate with them
In a few court cases, the courts have allowed deductions when the spouse’s presence was required by the business, and it helped promote the company’s public image, enhance the morale of company representatives, and improved business relationships.
Examples where the IRS held that a bona fide business purpose did NOT exist include:
- hosting a reception
- socializing with business associates
- performing light clerical duties
Even if the spouse’s travel expenses don’t qualify as deductions, the business owner is allowed to deduct the travel expenses she would have incurred had she traveled alone. The allowable deductions generally are more than half of the total travel expenses for both people.
Example: Wilma is a business owner. Fred accompanies her on travel. Although Fred is there for a bona fide business purpose, his travel expenses are not deductible because he is not employed by Wilma—remember the spouse has to be an employee. They have the following expenses:
- lodging is $150 per night for a double room for four nights (assume a single rate room is $100 per night)
- transportation expenses for the 1,000 mile trip at 55.5 cents per mile is $550
- meals cost $800 (assume meal costs would be $500 if Wilma traveled alone)
Wilma’s deductible expenses are:
- $400 for lodging (the single rate room times four nights)
- The full $550 for transportation (since she would incur this same expense even if Fred didn’t tag along)
- $500 for meals (reduced by 50% disallowance rule)
The deductible expenses of $1,450 (before 50% meal disallowance) is more than 50% of the total travel expenses of $1,950.
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Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230