travel expenses

New Rules for Deducting Local Lodging Expenses

Share This:

When a taxpayer pays lodging expenses for local travel, the expenses are generally not deductible because they are considered personal expenses.

Fortunately, the IRS recently finalized guidance that allows local lodging expenses to be deductible under certain circumstances.  Local lodging expenses may be deductible as ordinary and necessary expenses incurred in connection with carrying on a trade or business, including a trade or business as an employee.  Whether the expenses are incurred in a trade or business is determined under all the facts and circumstances.

The Safe Harbor Rule

The IRS has provided a safe harbor rule, and local lodging expenses will be treated as ordinary and necessary business expenses if all of the following requirements are met:

  • the lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function
  • the lodging is for a period that does not exceed five calendar days and does not occur more frequently than once per calendar quarter
  • if the individual is an employee, the employee’s employer requires the employee to remain at the activity or function overnight
  • the lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation, or benefit

The above requirements are a safe harbor, local lodging expenses may still be deductible if the facts and circumstances indicate the expenses were incurred for a trade or business.

Examples

Example:  Employer conducts a four-day training session for its employees at a local hotel.  Employer requires all employees to stay at the hotel to facilitate the training.  Employer pays the costs of lodging directly to the hotel and does not treat the value of the hotel stay as compensation to the employees.

The local lodging expenses meet the safe harbor requirements so the employer can deduct the lodging expenses and the employees do not have to report the value as income.

Example:  Same facts as above, except that the training lasts seven days.  Now the safe harbor is not meet because the period lasted longer than five days.  However, the local lodging expenses will still meet the facts and circumstances test because the training is a bona fide requirement of employment and the employer has a noncompensatory business purpose for the lodging expenses.  Employer is not paying the expenses primarily to provide a personal benefit to the employees, and the lodging Employer provides is not lavish or extravagant. 

Example:  Employer requires an employee to be “on duty” each night to respond quickly to emergencies that may occur outside of normal working hours.  Employees who work daytime hours each serve a “duty shift” once per month to respond to emergencies (which occur regularly).  Employer has no sleeping facilities, so employer pays for a nearby hotel room where the duty shift employee sleeps. 

While this fact scenario does not meet the safe harbor requirements (each employee’s local lodging expenses occur more frequently than quarterly), the local lodging expenses will meet the facts and circumstances test.

The duty shift is a bona fide condition or requirement of employment and Employer has a noncompensatory purpose for paying the lodging expenses.  Employer is not providing the lodging for the employee’s personal benefit, and the lodging is not extravagant.  

freeconsultation

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.

Deducting Travel Expenses for Charity

Share This:

People who travel to, or on behalf of, a charitable organization as a volunteer may be able to deduct the travel expenses as charitable contributions.  Unreimbursed travel expenses are deductible only if there is no significant element of personal pleasure, recreation, or vacation in the travel.  In determining whether there is a significant element of personal pleasure, the relevant question is how much time the taxpayer spends in service to the organization and how much time the taxpayer spends in recreation or in free time.

What Travel Expenses are Deductible?

Deductible travel expenses include:

  • Air, rail, and bus transportation
  • Auto expenses.  The use of an automobile for charitable purposes is deductible at the standard mileage rate of 14 cents per mile.  Alternatively, taxpayers may deduct the cost of gas and oil directly related to the use of the auto in providing services to a charitable organization
  • Reasonable food (subject to the 50% meal limitation) and lodging costs necessarily incurred while away from home
  • Transportation costs between the airport or station and the hotel (or place where the taxpayer is staying)

There is no deduction for the value of the volunteer’s time or services.

Example:  Tim is on the board of directors of a charity.  There is a seminar in Florida on fundraising.  Tim is sent by the charity to attend the seminar.  He is covering the travel, lodging, and meal costs.  If the seminar lasts a couple hours a day for three days, and Tim spends most of the day hanging out at Disney World, it is highly likely that the travel contains a significant element of personal pleasure and the travel, lodging, and meal expenses are not deductible.

Example 2:  Same as above except that the seminar is 8 hours a day for three days.  Tim goes out for dinner and entertainment each night.  In this example, most of the day is spent at the seminar and even though Tim enjoys some recreation at night, it is unlikely that this amount of recreation would constitute a significant element of personal pleasure.  Tim would be able to deduct the expenses.

Keeping Records

Unreimbursed volunteer expenses have the same substantiation requirements that apply to cash contributions.  To prove a gift was made, a donor must produce one of the following:

  • A cancelled check
  • A receipt showing the name of the charity, the contribution date, and the contribution amount

A contribution of $250 or more must, in addition to meeting one of the two above requirements, be supported by a contemporaneous written acknowledgement by the charity.  It is critical for clients to have all required receipts before filing their return, even if this means extending the return.  Since the charity is not directly receiving funds it may be unaware that the volunteer incurred the expenses, volunteers have to be proactive in requesting an acknowledgement that they incurred unreimbursed expenses while volunteering.

 

freeconsultation

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.

Deductions for Conventions Outside the U.S. and on Cruise Ships

Share This:

This is the final post in a three part series that addressed tax issues of travel.  Prior posts included deducting domestic and foreign travel and deducting travel expenses of a spouse.  This post will focus on attending conventions outside the United States, including conventions on cruise ships.

To take a deduction, taxpayers must pass additional hurdles to show that the convention, seminar, or similar meeting outside North America or on a cruise ship directly relates to the conduct of their trade or business.  The North American area includes the U.S., its possessions, the Pacific Islands Trust Territory, Canada, Mexico, and certain Caribbean countries.

Conventions, Generally

To deduct expenses of a convention outside the North America, the taxpayer must establish that it is reasonable for the meeting to be held outside North America.  The reasonableness of the location includes factors such as:

  • The purpose and activities of the meeting
  • The sponsoring organization
  • The residences of the organization’s active members
  • The location of other meetings

In addition, the time spent in business meetings must be substantial when compared to the time spent sight-seeing and in other recreational activities; otherwise the trip will be considered a personal vacation and only the registration fees of the business meeting and other direct business expenses are deductible.

Example:  Jethro, who lives in Michigan, is considering opening a business in Italy.  He attends a 3 day seminar in Italy, organized by Italian accountants and attorneys, that explains the nuts and bolts of conducting business in Italy.  Since the seminar’s purpose is to explain how to conduct business in Italy, and the seminar is sponsored by Italian business and legal professionals, it is reasonable for the seminar to be held outside North America.  John can deduct his travel expenses to Italy, his lodging and meals, and incidentals.  However, the time spent in the seminars must be substantial compared to his recreational activities in Italy or the travel expenses (with the exception of the seminar fees) will be nondeductible.

Example 2: Elly May is a successful attorney in Michigan.  Her local bar association holds a convention in Paris that addresses legal practice in Michigan.  It is probably not reasonable for a convention addressing Michigan law to be held in Paris.  Therefore, her travel costs to Paris will not be deductible.  However, she may take a deduction for the convention’s registration fees.

Conventions on Cruise Ships

Deductions for conventions on cruise ships are limited to $2,000 per person per year.

 

Additionally, deductions are allowed only if the ship is a U.S. registered vessel, and all of its ports of call are in the U.S. or its possessions.  A taxpayer must also attach the following written information to her return for the year the deduction is claimed:

  • A statement signed by the taxpayer showing the number of days of the trip, the number of hours each day spent attending scheduled business activities, and the program of the convention’s scheduled business activities
  • A statement signed by an officer of the sponsoring organization that includes a schedule of each day’s business activities and the number of hours the taxpayer attended those meetings

Guess what?  The IRS doesn’t like conventions on cruise ships!

 

 Comments or questions about this post?  Please let us know through the comment area below!

If you found this article informative, subscribe to our Tax Newsletter.

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

 

 

Deduct Travel Expenses of a Spouse

Share This:

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:

The spouse:

  • 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. 

 Comments or questions about this post?  Please let us know through the comment area below!

If you found this article informative, subscribe to our Tax Newsletter.

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

Get Our Posts by Email


Created by Webfish.