Deducting business travel: how far can you go?
Paul N. Strassels
Deducting Business Travel: How Far Can You Go? By Paul N. Strassels
Those who travel on business are entitled to deduct the ordinary and necessary expenses associated with that travel, as a legitimate cost of doing business. That includes the full price of hotel rooms and taxis, 80 percent of the cost of your meals and entertainment, and more. It does not matter whether your firm is big or small, incorporated, a partnership or a sole proprietorship. The beauty of the tax law is that it makes no distinction base on size or form among businesses eligible to deduct business travel and related expenses.
Go ahead. Plan an annual business meeting for your board of directors and officers at a post resort. It can be local or cross-country. The cost is deductible even if you and your spouse are the only employees of the firm. You don’t even need to be incorporated. In fact, you may want to meet semiannually or even quarterly so you can regularly review how well your firm is meeting its financial and sales goals.
When you set up these meetings, plan to meet six to eight hours a day. In advance, write up an agenda, detailing the ground you intend to cover, and stick to it.
There is, however, no requirement that you stay cooped up in a stuffy hotel room 24 hours a day. You are permitted to adjourn the meeting for an afternoon round of golf or a tennis match without placing your deduction in jeopardy.
Recently, the Tax Court upheld the validity and necessity of out-of-state board meetings and conferences, noting that in the case before the court they served bona fide business purposes that the business owners were able to document. The court did not consider the expenses extravagant and accommodations were used.
In this case, the expenses of the spouses were not deductible, but only because their attendance served no particular business purpose; the court found that the spouses’ attendance was purely social. Advance planning can easily eliminate that problem, however. For example, when your spouse is an officer, director or paid employee of the firm, the expensee associated with travel are deductible.
Taking Some Of The Fun Out Of Foreign Travel
Procrastinators who have not been able, for whatever reason, to complete their federal income-tax returns by April 15 have long enjoyed a nifty loophole.
As mentioned in the April Nation’s Business, individuals were given until June 15 to file their returns and pay their taxes when they could prove that they were out of the country on income-tax day. Although this regulation was on the books for decades, the IRS decided two weeks before this year’s filing deadline to rewrite it. Now the rule reads that you can get the extra two months to file your return when you are out of the country on April 15, but only when you have been abroad for at least two consecutive weeks, including April 15.
Payroll Taxes: Accuracy Pays
The IRS has become quite good at matching form 941 quarterly payroll-tax reports against withheld income and Social Security tax deposits made at federal depositaries across the country. It’s a simple computer match. When the computer identifies a discrepancy, out goes the letter telling the employer to pay the difference between what the 941 shows is owed and what the deposits total. In years past, the IRS was terribly slow in comparing these records. Now it takes a few days. What’s more, the IRS is usually correct in these matters. When it comes to payroll-tax withholding, deposits and reports, be as accurate as possible subject to penalties and interest charges.
PHOTO: Paul N. Strassels, president of Money Matters, Inc., Burke, Va. is a tax-law specialist and financial adviser.
PHOTO: So far, Congress, the courts and the IRS will still let your business hold meetings at a resort — and you can even take time off for golf.
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