Convention tax write off: Are you taking advantage?

Imagine an enjoyable — and educational — vacation, with Uncle Sam picking up part of the tab.

The reality is that every veterinary practice, the principals and employees of that practice (even someone who is a shareholder/employee) can legitimately claim an income tax deduction for the expenses paid or incurred in attending trade shows, conventions and meetings.

On the downside, the deduction is not available for expenses of attending a convention or meeting related to investments or other income-producing property. On the plus side, the Internal Revenue Service (IRS) recently updated the rules for deducting the expenses incurred while traveling on business.

Thanks to our tax laws, the government will pickup the tab for a sizable portion of your expenses while attending veterinary meetings, if you follow the rules. Generally, all that is required in order to qualify for convention-related tax deductions is that you show, if asked, that attendance of the trade show, meeting, convention or other event benefited your veterinary practice.

The essentials

The 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 expenses for 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, so are the costs associated with attending the event itself.

Enjoyable entertaining

Most meals offer a veterinarian the opportunity to meet with and entertain colleagues or suppliers. Even when those convention-related meals do not involve entertainment, the tax deduction for the expense of those meals might make them taste a little better.

Unfortunately, when it comes to meals, the tax rules contain quite a few restrictions — offset by a number of loopholes. Generally, expenses for meals include all amounts spent for food, beverages, taxes and related tips. That tax deduction for meals is ordinarily labeled by the IRS as "entertainment," however, and is usually limited to 50 percent of the amount actually spent.

Under the tax rules, those veterinarians attending a trade show or convention — or anyone away from home overnight on business — is permitted to use either the actual cost of the meals or a standard amount to compute the tax deduction for convention-related meals.

Bringing company

Should any attendee's spouse, family members or others accompany them to a meeting, trade show or convention, either the attendee or his or her veterinary practice can deduct their travel expenses. But, only if that individual:

1) is your employee;

2) has a bona fide business purpose for the trip;

3) and would otherwise be allowed to deduct the convention expenses.

The veterinarian must prove there was a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining, is no longer enough.

Consider this fictitious example of veterinarian Michael Peters, who, along with his wife Mary, drove to Chicago to attend a convention. Because Mary is not an employee of Michael's practice, even if her presence serves a bona fide purpose, 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 Chicago, and the rate for a single room each night. If he uses public transportation, he can deduct his fares.

As mentioned, as an alternative to the actual cost method, both self-employed veterinarians 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 to you or is an incorporated veterinary practice in which you are more than a 10 percent principal, the standard meal allowance cannot be used.

The standard meal allowance is set as the official Federal Meals and Incidental Expense (M&IE) rate. After October 1, 2006, the standard meal allowance varied from $45 to $58 per day for most areas of the United States. Maximum per-diem rate, including lodging, ranged from $148 to $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 veterinarians, as well as employees who are not reimbursed when computing the deductible costs paid or incurred for business meals and incidental expenses. The optional method also covers incidental expenses only if no meal costs are paid or incurred while traveling away from home.

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 are 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 self-employed veterinarians 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 meeting or convention was entirely business related. So long as the trip is "primarily" for business purposes and, while at the meeting or convention, 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 convention.

Backing up the deductions

In order to claim any tax deductions, every veterinarian must be able to prove 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 conference, are a legitimate tax deduction – either the actual amounts spent or the standard M&IE rate provided by the government. Remember, however, although the actual amount of the deduction can be taken from tables provided by the IRS, it remains necessary to prove (through adequate records or sufficient corroborative evidence) the time, place and business purpose of the convention travel.

What if by sea?

The cruise ship industry is not happy, but our tax rules allow only a limited tax deduction for expenses incurred for conventions on U.S. cruise ships. The deduction is limited to $2,000 for all cruise convention expenses during a tax year. The limited deduction is available only – (1) if all ports of call for the cruise ship are located within the U.S. or its possessions; (2) if the attendee establishes the convention is directly related to the active conduct of his or her veterinary practice; and (3) the veterinarian includes certain specified information on the return on which the deduction is claimed.

Writing off education

Imagine reaping business benefits, education and enjoyment wrapped up in one trip. In reality, the agenda of the convention does not have to deal specifically with your veterinary practice; it is enough that you reasonably can be expected to gain some business benefit from attending that event. Best of all, thanks to our tax rules, those expenses may qualify as a legitimate tax deduction.

Mr. Battersby is a financial consultant in Ardmore, Pa.