Much is written about the professonal benefits of going to tow shows and other industry events, but largely unheralded are the tax-related benefits available to every tower attending — if they follow the rules. Generally, all that is required to qualify for convention-related tax deductions is that you be able to show, if asked, that attending the event benefited your towing and recovery business.

The one major downside to this deduction is that it is not available for the expenses of attending a convention or meeting related to investments or other income-producing property.

Deductibility

The Internal Revenue Service recently updated the rules for deducting the expenses incurred while traveling on business. All travel expenses are tax deductible if the trip to the meeting or convention was entirely business-related, that is, “primarily” for business purposes, including the expenses incurred while traveling to the event site.

While at the meeting or convention, if 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.

If, on the other hand, the trip was “primarily” for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense.

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 trade event. Also included are the expenses of taxicabs, commuter buses, airport limousines, baggage and shipping costs for samples or display materials, lodging and meals, cleaning, telephones, and even tips. And, of course all of the costs associated with attending the event itself.

Entertainment

The costs of meals and lodging while away from home for business travel or attending meetings, conventions and trade shows are deductible so long as they are not “lavish or extravagant under the circumstances.” However, the deduction for meals is limited to 50 percent of the total expenses. Food and beverage costs incurred in the course of travel away from home generally fall within the scope of the tax law’s 50 percent limitation for meal and entertainment expenses.

The 50-percent rule is applied only after determining the amount of the otherwise allowable deductions. For instance, the portion of a convention-related meal that is lavish and extravagant must first be subtracted from the meal cost before the 50-percent reduction is applied.

Related expenses such as the taxes and tips for meals and other charges, and the room rental and parking fees for “entertainment,” must be included in the total expense before applying the 50-percent reduction.  However, allowable deductions for transportation costs and other convention- or trade show-related expenses are not reduced.

Bringing Others

Should any attendee's spouse, family members, or others accompany them, either the attendee or his or her towing and recovery business can deduct their travel expenses, but only if that individual…

• is your employee,
• has a bona fide business purpose for the trip, and
• would otherwise be allowed to deduct the convention expenses

In order for a “bona fide business purpose” to exist, the tow professional must prove a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining, is no longer enough.

Consider a tower named Mike who, along with his wife Mary, drove to Illinois to attend an industry convention. Because Mary is not an employee of Mike’s tow business, her expenses will not be tax deductible even if her presence serves a bona fide business purpose.

Mike paid $115 per night for a double room, but a single room costs $90 per night. He can deduct the total cost of driving his car to and from Illinois, but only $90 per night for his hotel room. If he uses public transportation, he can deduct only his fares, not Mary’s.

The Per Diem

As an alternative to this “actual cost” method, both self-employed tow owner/operators and their employees can 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 to you or is an incorporated business in which you are more than a 10 percent principal, the standard meal allowance can’t be used.

In general, the IRS-approved per-diem rates are those paid by the federal government to workers on travel status. However, instead of using the actual per-diem rates for each local, a simplified “high-low” per diem, under which there is one uniform per-diem rate for all “high-cost” areas within the continental U.S. may be used.

Under the optional high-low method for post-September 30, 2009 travel, the high-cost area per diem rate is $258 ($2 more than the previous rate), consisting of $199 for lodging and $65 for Meals and Incidental Expenses (M&IE).

One Option

A revenue procedure introduced by the IRS provides an optional method for computing deductible costs paid or incurred for business meal and incidental expenses by both self-employed towing company owners and employees who are not reimbursed by their employers.

Thus, while attending a convention or trade show under an all-inclusive plan where meals are included, employees and self-employed towing and recovery professionals may claim a legitimate tax deduction for incidental expenses of five dollars per day without the need of substantiating that claimed amount.

Prove It

In order to claim any tax deductions, every attendee must be able to prove that the expenses were actually paid or incurred. In fact, the following expenses, which have been deemed by the IRS as particularly susceptible to abuse, must generally be 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

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. However, keep in mind that while the actual amount of the deduction can be taken from tables published by the IRS, it remains necessary to prove (through adequate records or sufficient corroborative evidence) the time, place, and business purpose of the convention-related travel.

Documentary evidence, such as receipts or paid bills, is not generally required for expenses that are less than $75. However, documentary evidence is required for lodging expenses.

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          So, in conclusion, you can reap tax benefits while doing business, getting training, and having fun, all wrapped up in one trip. This is because, in reality, the agenda of the convention does not have to deal specifically with your towing and recovery business — it is enough that you reasonably can be expected to gain some business benefit from attending that event. Thanks to these tax rules, Uncle Sam will pick up a part of the cost of attending those shows, meetings, and conventions.

What If By Sea?

The idea of a towing and recovery educational cruise is a fresh, fun concept (sorry, training only; no trucks allowed aboard), but, unfortunately, the tax rules only permit a limited tax deduction for expenses incurred while attending conventions on U.S. cruise ships. Plus, to get the deduction, the cruise ports of call are limited also.

The deduction is limited to $2,000 for all cruise-related convention expenses incurred during a tax year. This limited deduction is available if…

• all ports of call for the cruise ship are within the U.S. or a U.S. possession
• the attendee can establish the convention was directly related to the active conduct of his or her towing and recovery business, and
• if certain specified information is included with the annual income tax return