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Soak up tax breaks at a winter convention on Uncle Sam’s tab

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Would you like to get away to a tropical paradise this winter? Normally, you’d have to pay a steep price for such a trip, but there’s a way you can get Uncle Sam to pick up part of the tab.

Strategy: Sign up for a convention relating to your industry or profession. After you’ve brushed up on the latest developments in your field, you can relax on the beach or golf course in your spare time.

As long as the primary purpose of the trip is business-related—you’re there to learn first and vacation second—you can write off all of your convention expenses. It’s just like getting a tax discount on the trip.

However, be aware that the rules are tougher for conventions held outside the North American area. Depending on the location, you might even bypass one convention in favor of another. Reason: It could mean the difference between a four-figure tax deduction and no deduction at all.

First, let’s look at the rules for business conventions held inside the North American area. Assuming that business is the primary motive behind the trip, you can deduct expenses such as your air fare, lodging and convention fees. In addition, you’re allowed to deduct 50% of the cost of your meals and any qualified entertainment.

For instance, suppose you meet with an associate after a morning seminar to work out a joint business venture. Then you treat the associate to an evening sea cruise followed by dinner and drinks at the hotel’s swankiest restaurant. You can write off 50% of the cost of the entertainment as a business expense.

Note that if you are an employee, unreimbursed employee business travel and entertainment expenses are subject to another tax law limit. These expenses are lumped in with your other miscellaneous expenses. You can deduct the annual total only to the extent it exceeds 2% of your AGI. So it’s usually preferable to have your company foot the bill by reimbursing you for all eligible expenses.

What happens if you attend a convention at a site outside the North American area? In that case, there’s an extra requirement: You must show that it is reasonable for the convention to be held outside the North American area as within it. If you don’t pass this “reasonableness” test, your deduction is zero.

How do you establish what is “reasonable” for this purpose? You can cite one or more of these three factors:

  1. The purpose of the convention and the activities taking place at the convention.
  2. The purpose and activities of the sponsoring organization of the convention.
  3. A list of residences of active members of the sponsoring organization and other prior and prospective convention sites.

Finally, you may be able to present other relevant factors that can prove that it is as reasonable for the convention to be held outside the North American area as within it. But this other proof should be viewed strictly as a “last resort.”

No matter where the convention is held, you must meet strict substantiation requirements to back up your deduction. Record all the sessions you attend in a diary, and keep brochures and other documents detailing business-related activities at the convention.

Tip: Special limits apply to conventions held aboard cruise ships. If the convention takes place aboard a vessel registered in the United States, and all ports of call are within the United States (or its possessions), you can deduct no more than $2,000.

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