- Created on Tuesday, 03 April 2007 02:40
- Written by Mark E. Battersby
With The Clean Show in Las Vegas approaching, it’s important to know that every laundry business executive, and owners and employees of laundry businesses can legitimately claim a income tax deduction for the expenses paid or incurred in attending trade shows, conventions and meetings – if you follow the rules.
The Internal Revenue Service recently updated the rules for deducting the expenses incurred while traveling on business. Those revised guidelines contain an optional method under which self-employed laundry professionals and employees who are not reimbursed by their employers can utilize per diem allowances.
Usually all that is required to qualify for convention-related tax deductions is that you can show that attendance the trade show, meeting, convention or other event benefited your laundry related business.
There are restrictions mostly imposed on investors and investment related conventions. The convention deduction is not allowable for expenses of attending a convention or meeting related to investments or other income-producing property.
DEDUCTING THE ESSENTIALS
The expenses incurred while traveling to the site of a convention, trade show or event are tax deductible. Tax deductible travel expenses include 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, the costs associated with attending the convention itself.
At The Clean Show there will be meetings between new and old business associates. Many of those meetings will be held in restaurants. The tax dedduction for the expense of those meals frequently makes them taste better.
However, when it comes to meals, the tax rules impose a number of restrictions – as well as a number of loopholes. Generally, expenses for meals include all amounts spent for food, beverages, taxes and related tips. The tax deduction for meals is labeled by the IRS as “entertainment,” however, and is generally limited to 50 percent of the amount actually spent.
Under the tax rules, those launderers attending a trade show or convention, 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.
Should any attendee's spouse, family members or others accompany them to trade show or convention, either the attendee or his or her laundry operation can deduct their travel expenses. But, only if that individual:
(1) Is your employee;
(2) Has a bona fide business purpose for the trip; and
(3) Would otherwise have been allowed to deduct those convention expenses.
In order for a bona fide business purpose to exist, the launderer 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 a laundry business owner, Michael Peters who, along with his wife Mary, drive to Las Vegas to attend The Clean Show. Because Mary is not Michael’s employee 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 Las Vegas, but only $90 per night for his hotel room. If he uses public transportation, he can deduct only his fares.
As mentioned, as an alternative to the actual cost method, both self-employed business owners and 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 or is an incorporated laundry business in which you are more than a 10 percent owner, the standard meal allowance cannot be used.
The standard meal allowance is the official Federal Meals and Incidental Expense rate (M&IE). It varies between $45 and $58 per day for most of the United States. Maximum per-diem rate, including lodging, varied between $148 and $246 per day during the last quarter of 2006 and into 2007.
OPTIONAL METHOD FOR THE NON-REIMBURSED
The IRS’s new Revenue Procedure provides an optional method for self-employed laundry owners as well as employees who are not reimbursed to use in computing deductible costs paid or incurred for business meal and incidental expenses. The optional method also covers incidental expenses only if no meal costs are paid or incurred.
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.
In lieu of using actual expenses in computing allowable incidental expenses paid while away from home, employees and self-employed individuals who do not pay or incur meal expenses may use an amount computed at the rate of $3 per day. Thus, while attending a convention or trade show under an all-inclusive plan where meals are included, employees and those self-employed may claim a legitimate tax deduction for incidental expenses of $3 per day without the need of substantiating that claimed amount.
FURTHER CONVENTION 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?
So 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 nondeductible 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 THE CONVENTION EXPENSE DEDUCTIONS
In order to claim any tax deductions, you 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.
These are broad tax guidelines. For specific information, contact your tax professional.
SELLING YOUR BUSINESS OR YOUR WARES
Almost everyone can attend a trade show or convention and claim the expenses as an income tax deduction. Similar tax deductions are also available where a laundry – or its suppliers - has a promotional or sales booth at a trade show. In other words, the expenses of exhibiting or selling at a trade show or other event are also tax-deductible business expenses.
Under our income tax laws, it is immaterial whether the booth is set up at a show for the purposes of promoting your business, your products or your services - or for selling your goods, products or services. Even where the business is engaged in direct sales to the public the expenses, for the most part, are tax deductible.
Remember, however, expenses incurred in creating a unique display or booth may not qualify for an immediate income tax deduction. If that display or booth, is for one-time use only, if it is not adaptable to other events or venues, then perhaps an immediate tax deduction as an expense for property with a useful life of one year or less might be in order. Otherwise, the depreciation rules come into play.
If depreciation is the route that must be taken, do not overlook the tax deduction for abandonment of a business asset for the entire book value of any asset that is no longer useful to the laundry business. Naturally, that asset must actually be abandoned or disposed of (not merely stored).
The tax rules governing the deduction of travel, meals, lodging and entertainment also apply. The standard or per diem deduction is also available to every laundry operation and laundry supplier who uses trade shows, conventions and meetings to sell their products or services.
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