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Conventions, Trade Shows and Tax Write-offs
April 1, 2008 By: Mark Battersby Paperboard PackagingWhat you need to know about tax deductions for attending those industry meetings.
Imagine an enjoyable — and educational — vacation with Uncle Sam, in the form of our tax laws, picking up part of the tab. That's right, every corrugated container and folding carton converter, the owner and employees of that business (even someone who is a shareholder/employee), can legitimately claim an income tax deduction for the expenses paid or incurred in attending trade shows, conventions, and meetings.
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Naturally, there are restrictions, such as the major downside to the convention expense deduction: It is not available for the expenses of attending a convention or meeting related to investments or other income-producing property.
Deducting the Essentials
Expenses incurred traveling to the site of the convention, trade show or event are, as mentioned, tax-deductible. Tax-deductible travel expenses include such expenditures as the cost of traveling by plane, train, bus, or car between your home and the site of the meeting, convention, or trade show. Also included are the expenses of taxicabs, commuter bus and airport limousines, baggage, and shipping costs for samples or display materials, lodging and meals, cleaning, telephone, and even tips. And, of course, it includes the costs associated with attending the convention itself.
Enjoyable Entertaining
Part of the fun associated with attending a trade show or convention is often the meals. Well, maybe not the meals themselves, but the fact that those meals offer a corrugated container or folding carton manufacturer the opportunity to entertain prospective customers, or even potential suppliers, certainly seems to make them more enjoyable.
Unfortunately, when it comes to meals, the tax rules contain quite a few restrictions — as well as a number of loopholes. Generally, expenses for meals include all amounts spent for food, beverages, taxes, and related tips. Labeled by the IRS as "entertainment," however, the tax deduction for meals is generally limited to only 50 percent of the amount actually spent.
Those corrugated container and folding carton converters attending a trade show or convention and are away from home overnight, are permitted to use either the actual cost of the meals or a standard amount to compute the tax deduction for convention-related meals. If you, as an individual, are reimbursed for those expenses, how you apply the 50 percent limit depends on whether your employer's reimbursement plan was accountable or non-accountable.
Bringing Company
Should any attendee's spouse, family members or others accompany them to trade show or convention, either the attendee or his or her business can deduct the travel expenses. But, only if that individual:
(1) Is an employee of the business;
(2) Has a bona fide business purpose for the trip; and
(3) Would otherwise be allowed to deduct those convention expenses.
In order for a bona fide business purpose to exist, the corrugated container or folding carton manufacturer must prove a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers, is no longer enough.
Consider packaging business owner Michael Peters who, along with his wife, Mary, drove to Chicago to attend a convention. Because Mary is not Michael's employee — even if her presence serves a bona fide purpose — her expenses will not be tax-deductible.
Michael pays $115 per night for a double room. A single room costs $90 per night. He can deduct the total cost of driving his car to and from Chicago, but only $90 per night for his hotel room. If he uses public transportation, he can deduct only his fare.
As mentioned, as an alternative to the actual cost method, self-employed business owners as well as employees are allowed to deduct a standard amount, a so-called "per diem allowance" for their daily meals and incidental expenses while attending a convention.
However, even when this standard meal allowance is used, records must be maintained proving the time, place and business purpose of any travel or convention attendance. Unfortunately, if your employer is related or is an incorporated business in which you are more than a 10 percent shareholder, the standard meal allowance cannot be used.
The standard meal allowance is the official Federal Meals and Incidental Expense (M&IE) rate. After Oct. 1, 2007, the standard meal allowance has ranged between $45 and $58 per day for most areas of the United States. Maximum per-diem rate, including lodging, varied between $152 and $237 per day during the last quarter of 2007 and into 2008.
The term "incidental expenses" means fees and tips given to porters, baggage carriers, bellhops, hotel maids, transportation between places of lodging or business and places where the convention, trade show or meeting is held or meals taken.
Further Enjoyment
The tax rules clearly state that all travel expenses are tax-deductible if the trip to the convention or trade show was entirely business-related. Suppose, however, that an attendee decides to combine that trade show attendance with a vacation?
As long as the trip is "primarily" for business purposes and, while at the convention or trade show, you extended your stay for a vacation, made a non-business side trip or had other non-business activities, you may still deduct your business-related travel expenses. Among the expenses directly related to attending a trade show or convention are such things as the travel costs of getting to and from the convention destination and any business-related expenses at that destination.
If, however, the trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a non-deductible personal expense. Naturally, you can deduct all expenses incurred while at your destination that are directly related to attendance at the trade show or convention.
Backing up
Meals and incidental expenses while away from home on business, especially those related to attending a trade show or convention, are a legitimate tax deduction — either the actual amounts spent or the standard M&IE rate provided by the government. Remember, however, although the actual amount of the deduction can be taken from tables provided by the IRS, it remains necessary to prove (through adequate records or sufficient corroborative evidence) the time, place, and business purpose of the convention travel.
The following expenses deemed by the IRS as particularly susceptible to abuse must be, generally, substantiated with adequate records or sufficient corroborating evidence: expenses with respect to travel away from home (including meals and lodging), entertainment expenses, and business gifts.
Writing off Fun and Business
By now, it should be evident that every corrugated container and folding carton manufacturer can write off or deduct the expenses of attending a trade show, meeting, convention, or other event. Under our tax rules, all that is required is a legitimate business purpose for attending that meeting, convention, or trade show.
In reality, the agenda of the convention does not have to deal specifically with your corrugated container or folding carton manufacturing operation or business; it is enough that you can be "reasonably expected" to gain some business benefit from attending that event.
Imagine reaping business benefits, an education and a good time wrapped up in one trip to a convention, trade show, or meeting. Best of all, thanks to our tax rules, those expenses may qualify as a legitimate tax deduction.
