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How to Enjoy a Tax Free Vacation

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Web 2.0 Summit ConferenceOne of the reasons I am called the “Wandering” Tax Pro is because once the tax filing season ends I enjoy travel via all methods – car, bus, plane, ship and train (not necessarily in that order). In the days before my uncle went to his final audit, I would pack my bags and we would embark on a transatlantic crossing, often on the QE2. We would also visit the Caribbean or take a train trip in the fall. Unfortunately, none of these trips were tax deductible for a tax accountant or a retiree.

However, my annual travel itinerary would also include two totally tax-deductible domestic vacations. I would attend the National Conference of the National Association of Tax Professionals (NATP) and the Annual Convention of the National Society of Tax Professionals (NSTP), held each year in a different US city. I have visited Anaheim, Atlanta, Arlington, Alexandria, Boston, Corpus Christi, Minneapolis, Orlando, Sans Antonio, Diego and Francisco, Washington DC, and other locations as a registrant of these two annual events, and deducted every penny of my hotel, meal and travel expenses.

What You Can Deduct

You can deduct expenses that are “ordinary” and “necessary” for your trade, business or profession. An “ordinary” expense is one that is common and accepted in your specific trade or profession and a “necessary” expense is one that is helpful and appropriate. This is true whether you are a W-2 employee working for someone else or are self-employed, either as a sole proprietor reporting income and expenses on Schedule C of Form 1040, a partner in a partnership which files Form 1065, or an employee of your own “one-man” corporation filing either Form 1120 or Form 1120S.

An employee would deduct such expenses as a “miscellaneous deduction” on Schedule A, subject to the 2% of AGI exclusion. So the deduction is only available if you itemize and could be limited. However if you have a one-man corporation and pay yourself a salary the corporation can pay directly, or reimburse you under an accountable plan, for such expenses and deduct them on the corporate return.

Conferences Are Educational

One “ordinary and necessary” business expense for which you can claim a tax deduction is the cost of education that is (1) expressly required by an employer, by law, or by government regulation, or (2) maintains or improves skills required in your current trade or business. If a conference falls under this category, then the associated registration and travel expenses are deductible as well!

To be deductible, you must show that your attendance benefits your trade or business. Unfortunately, if the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses:

The convention agenda or program generally shows the purpose of the convention. You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes.

Example Deductible Expenses

  • The registration fee for the conference or convention and any related books or materials.
  • Round-trip airfare, trainfare, or busfare at cost, or the Standard Mileage Allowance for business travel if you drive (or, as an alternative, a percentage of the total actual costs of operating your car) and related red cap tips.
  • Taxi fares to and from the airport, train or bus station, to and from your hotel, and to and from other business locations while away.
  • Hotel or motel lodging expenses, including tips to bellman and maids and the cost of laundry services.
  • All meals (although as with any business meal only 50% is actually deductible).

After I deduct all my travel expenses, I often save enough in taxes to cover the registration fee and some of the travel expenses! I get a free quality education, which benefits my practice, and I save on the actual cost of the trip.

What You Can’t Deduct

If you are travelling with your family, only your expenses are deductible. However airlines often offer discounts for accompanying family members, and a hotel room is generally the same price whether regardless of the number of people in the room. You can deduct what it would cost if you were travelling alone. There are special rules if your spouse also works for your business.

You cannot deduct auxiliary sightseeing expenses while at the conference or convention, such as guided tours or travel to and from attractions, museums, sporting events, theatres, etc (unless you were attending with a client or colleague and the activity qualified as deductible business entertaining).

Record Keeping Rules

As with any other business expense you must keep detailed records and receipts. Use a credit card for all meals, get receipts from taxi drivers, and keep a copy of the detailed hotel bill in addition to the charge card receipt. And be sure to save the conference or convention agenda/schedule to prove its relevance to your trade, business or job.

Just as with business use of your automobile and the Standard Mileage Allowance, the IRS allows you to deduct either the actual out of pocket expenses for meals and “incidental” expenses and lodging or claim a federal “per diem allowance” that is determined by the location of the trip. There is a per diem rate for lodging and a separate one for meals and “incidental” expenses. If you claim the per diem allowance you do not have to save receipts for actual expenses, here are the GSA per diem rates.

The per diem rate for meals and incidental expenses includes tips given to porters, baggage carriers, bellhops, hotel maids (the “incidental” expenses) – so the actual out of pocket for these incidentals are not deductible if you claim the per diem. On the first and last day of a business trip you claim 75% of the per diem amount, unless you can show you leave before breakfast on the first day and return after dinner on the last.

You can decide whether to deduct the GSA meals and incidental per diem rate or actual expenses on a trip by trip basis, but you must use the same method for all days within any single business trip. You can use the actual expenses when attending a conference in New York City in May and the per diem rate for an August convention in Las Vegas.

Remember, 100% Business

Make sure to schedule your trip so that it remains 100% business. Let’s look at this year’s NATP National Conference (in Reno) as an example. Registration begins on Sunday, with activities running Monday through Thursday. You would want to arrive on Sunday and leave on Friday. This way you have no “personal days”. However, all you need to do on Sunday is register, leaving the rest of the day to do whatever you want.

FYI, travel extended to get a reduced airfare (such as a Saturday or Sunday night stay-over for domestic travel) is allowed, even though there is no business activity on the extra day, if the extra cost of the stay-over is less than or equal to your airfare savings (IRS Private Letter Ruling 9237014).

So you have always wanted to visit San Francisco. Find a conference or convention related to your business that is being held there and take a tax-deductible vacation!

If you have questions about anything discussed above I suggest you consult your tax professional. You can find a tax professional in your area at www.taxprofessionals.com. Or you can leave a comment and I will try to answer if appropriate.

Robert D Flach is a Jersey City, New Jersey based tax professional who has been preparing 1040s for individuals in all walks of life since 1972, and writing the popular tax blog THE WANDERING TAX PRO since 2001. He also writes the NJ TAX PRACTICE BLOG. You can follow rdftaxpro on Twitter.

(Photo: yourdon)

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6 Responses to “How to Enjoy a Tax Free Vacation”

  1. Miranda says:

    As a professional blogger, I can deduct BlogWorld when I go! It really is good to know a little bit about the ins and outs of possible deductions.

  2. Damon Day says:

    The sad thing is that the code is so complex and full of special deductions, that in order to take advantage of it, as you should, you almost have to plan your life around the tax code. Not so much if you are w-2 wage earner, but definitely if you are self employed. Everything you do is a tax benefit or a consequence.

  3. Dealing in the tax world, I am always amazed at how little most self employed and business owners do to reduce the amount of tax they owe. Considering how the tax code can be used in your favor and can impact as much as 50% of your income, I would expect more people to learn and educate themselves.

    If you don’t want to educate yourself, find a good professionaly who is willing to work with you, coach you and ask tough questions.

    You can have a huge impact on your wealth by focusing on how to reduce legally what you owe in taxes.

  4. Linda says:

    My first year of total self-employment meant that I made a lot of money, but I didn’t have enough deductions and owed a bunch of money! This year I worked a bit less, and everything I spend has to be towards something I can deduction. I took a trip to attend an educational conference in a town that a friend lived and a place I had never been. I went to the conference and got to visit with my friend, too. The trip will be a good deduction.

    I wonder what people do who are self-employed and make six figures, etc.
    Six-figures and a W-2 is a whole different world. I got to be better informed. Thanks for information on this website.

  5. Venkat says:

    Hi Robert and other readers,

    I am a one person S-Corp. I recently attended a conference. And I use QuickBooks Pro. I have a question:

    Under What category do the Airlines/Hotel/Meals expenses go. I put the Conf. fees under Professional Development category. Not sure if I can put air and hotel in the same category and meals under Meals and Entertainment category.

    Thanks,
    Venkat

  6. Scott says:

    If I register for a conference the year before it occurs, do I make the deduction on my taxes for the year that I paid the registration fee, or the year that I attended the conference?


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