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Trade shows, like the NWFA's upcoming convention in Long Beach, Calif., are great for finding new products and making profitable contacts. However, there's a downside: With the rising cost of travel, going to a show can get mighty expensive. Airfare, car rentals, hotel bills and meals—they can add up to big money.
What to do? You can reduce a trade show's effect on your bottom line by deducting all appropriate travel costs as business expenses on your income taxes.
Take care, though: You must take only those tax deductions allowed by law.
"The IRS is always looking for excessive or unsubstantiated deductions when it comes to travel expenses," cautions Tom Ochsenschlager, vice president of taxation at The American Institute of Certified Public Accountants (AICPA) in Washington, D.C. "It's the low-hanging fruit for auditors."
Disallowed deductions, of course, can be expensive in terms of penalties and interest.
Qualified Shows
Before you can deduct any expenses related to attending a trade show you must first determine if the event qualifies for tax deductibility. How? Consider the topic of the show and your purpose in attending.
"If a trade show serves a legitimate business purpose, then the related travel expenses are tax-deductible," says Patrick Anderson, principal of Anderson Economic Group in Lansing, Mich. But problems arise when we want to attend trade shows that only meet this requirement half-way. "If a trade show is on a topic that might just help the attendee make some money on the side, that person should expect some scrutiny from the IRS," Anderson cautions.
Once you are sure that your trade show is business-related, you are able to claim a wide variety of expenses from airfares to car rentals to hotels and meals.
Meal Expenses
You have to eat when you travel—and that usually generates expensive restaurant bills.
Special rules apply to these expenses.
"You can deduct meals when you are traveling overnight, away from home or if the meal is business-related," says Andrew Benedict, tax manager at RGA Advisors in New York City. However, only 50 percent of the meal cost is deductible. The reasoning is that the other half represents an expense you would have even if you were not on a business trip.
No deduction is allowable for meals unless you substantiate the expense by adequate records or sufficient evidence, cautions Benedict. The following information should be kept: 1) the dollar amount, 2) the time and place, and 3) the business purpose.
Per Diem Rates
Itemizing expenses while traveling can be a chore. You can save yourself some effort by opting for standardized deductions, or "per diems." These are available in two categories. The first is lodging. The second is meals and incidental expenses.
"If you are taking a lot of employees to the show, using the per diem expense can simplify your record keeping," says Abe Schneier, technical manager at AICPA. "It also helps you control expenses since you can tell your employees what the per diem rate is and ask them to try to limit their budgets to that amount."
Yet, using the per diem method does not relieve you of the task of maintaining supporting documentation: You still need to keep records showing the time, place and business purpose of your travel.
Careful Records
Knowing which travel expenses are deductible is a great help when it comes to income tax time. Your job's not done, though, when you stuff a handful of hotel and car rental receipts into a storage envelope. You must also properly document your expenses.
"The IRS typically requires contemporaneous records for expenses related to travel, meals and entertainment," says Benedict. "For each day's business expense you need to record the business purpose, the time, and the place in some kind of log. Such notation should be made at or close to the time you actually incurred the expense."
Once you have made your records, store them in a safe place in case the IRS wants to verify anything. Following these tips will ensure your ability to continue to network and educate yourself while saving some money, too.
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