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| For Real Summer Fun, Take the Family to Deductionland! |
07-08-2008 |
Welcome to Deductionland, America’s tax-smart theme park! Thrill to the
Accelerated Depreciation roller coaster! Splash down in the Wash Sale Whirlpool!
Explore the Tropical Tax Shelter! Run from the scary Alternative Minimum Tax!
And have a close encounter of the tax kind with a Nonresident Alien!
OK, so maybe there is a reason we don’t see many accounting-related theme parks.
Or any, actually. Although our Traders Accounting tax professionals definitely
catch a thrill every time we prepare an airtight, lean-and-mean trader tax
return, we admit it doesn’t really match the heart-pounding adrenalin rush of
such killer ’coasters as Kingda Ka or Millennium Force.
Then again, thrilling accountant rides can offer one thing that even the most
jaw-dropping theme parks can’t: your money back, and often more!
Thanks to the tax rules that govern tax write-offs for business-related
travel
and entertainment expenses (aka
T&E), with a little planning you can combine
business with pleasure and turn your family’s summer vacation into a trip to
Deductionland.
That’s right: If the purpose of your trip is business related, say a seminar or
a meeting with clients or associates, you can deduct most of your
T&E expenses,
provided you follow the rules laid down by the Internal Revenue Service.
Must Have Business Intent to Ride
Remember those theme-park signs that say, “Must be this tall to ride?” There’s a
similar qualifier on
T&E deductions: Must have business intent to ride. That is,
you must be able to show that the trip was intended for business purposes in
order to write off expenses. Merely distributing your business cards poolside at
your hotel won’t cut it with the feds.
The best way to turn your family vacation into a working, deductible business
trip is to schedule actual meetings with colleagues, potential clients or
employers at your destination before you leave. If you don’t know a soul at your
destination, schedule meetings to make new contacts, scout opportunities or even
drop a resume or two.
It all shows business intent, as long as you document those appointments with
details (time, place, name, position, purpose) in your journal or daybook. You
need not show financial gain, i.e. you landed new clients or accounts from the
trip; as long as you can prove you had business intent, you are cleared to ride
the
T&E train.
A cautionary word about the length of stay: in order to qualify as a business
trip, you must stay at least overnight. If you drive to Orlando, drop the kids
at Typhoon Lagoon for the day, squeeze in a business lunch and wind up back home
that evening, the IRS won’t let you deduct the expenses you incurred on the road.
Your expenses to stay over weekends, holidays and non-working days are all
deductible as long as you sandwich them between days when you actually pursue
business-related activities for the IRS minimum of four hours. However, you need
not conduct business on your travel days to and from your destination to deduct
their expenses.
The Tax Thrills of Deductionland
You’ve got your plane tickets booked, rental car confirmed, hotel reserved and a
great summer family vacation planned between business meetings. So what’s
deductible?
For starters, everything just mentioned – travel, rental car, hotel, business
meeting – as well as such additional transportation expenses as airport shuttles,
gas, parking, bridge tolls and tips. The incidental expenses of business travel
– tips, telephone/fax/Internet fees, laundry/dry cleaning expenses, business-related
supplies, etc. – are also fully deductible.
Where meals are concerned, your expenses for food, drinks, taxes and tips, as
well as entertainment expenses such as nightclub cover charges, room rental for
receptions and dinner parties, are only 50% deductible.
Record keeping is key to defending your
T&E deductions. The IRS requires two
types of proof of expenses: a journal or trip sheet on which each expense is
noted “at or near the time” it was incurred, and corroborating receipts for all
lodging and expenses in excess of $75. You can tally your journal on a weekly
basis and still fall within the IRS guidelines. We recommend using the
Tax Diary
by Sandy Botkins, CPA and Tax Attorney.
For T&E journal entries, be sure to note the following: date, time, place,
expense, name of guest(s) and business purpose of the expenditure. In the case
of business entertainment, you also need to note your business relationship to
those who accompanied you.
To support your business intent, it’s a good idea to collect business-related
fliers, handouts, seminar programs and receipts along the way. Be sure to hold
onto any correspondence via letter or email you exchanged with business contacts
before, during or after the trip as evidence that you made and kept your
appointments.
If your family enjoys group activities, enlist their help to collect, note and
organize the written evidence of your summer getaway to Deductionland. It will
both strengthen your case for a fully deductible business trip and help track
down stray deductible expenses when mom, dad and the kids go their merry ways.
What will you do with your summer tax deductions? Bring them to Traders
Accounting, of course. Our trader tax professionals can help maximize your
T&E deductions while making sure they fall within the IRS definition of reasonable.
That way, your summer fun won’t turn into a roller coaster ride when tax season
rolls around!
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