Imagine an enjoyable, educational, and profitable vacation with Uncle Sam, in the form of our tax laws, picking up part of the tab.
By Mark E. Battersby
Imagine an enjoyable, educational, and profitable vacation with Uncle Sam, in the form of our tax laws, picking up part of the tab. On one hand, every car care business can legitimately claim an income tax deduction for the expenses paid or incurred for the owner and employees (even someone who is a shareholder/employee) of that car wash or detailing operation to attend tradeshows, conventions, and meetings. Plus, many tax deductions are available to those using tradeshows, conventions, and other events to sell or promote their business.
Industry events, such as The Car Wash Show held this past May, are a good way to gain know-how, find new suppliers, and network with others in the industry. Best of all, Uncle Sam, in the form of our tax laws, is willing to pick-up the expense of attending many of these events — at least for some.
Bottom line: a car care business can deduct all non-extravagant “ordinary and necessary expenses” for attending business-related meetings, conferences, shows, and other events. Unfortunately, many deductions for show attendance previously claimed on the personal tax returns of attendees, were temporarily suspended by last December’s Tax Cuts and Jobs Act (TCJA), the same bill that put a bigger crimp in the meals and entertainment deductions.
REFORM MEALS AND ENTERTAINMENT
The TCJA eliminated, at least until 2026, the deductibility of some itemized expenses on the tax returns of individuals. Targeted were miscellaneous itemized deductions subject to the former 2 percent floor. That means that unreimbursed employee business expenses (including expenses for travel, lodging, meals, entertainment, continuing education, and others) can no longer be claimed on the personal tax returns of car wash operators, employees, or shareholders.
Fortunately, the rules for deducting the expenses of getting to, staying at, and attending the meeting, convention, tradeshow, or seminar that formerly applied to an individual, now apply only to businesses — including sole proprietorships. Of course, in order for the car care business to take the deduction, it must have the convention expenses on its books.
If the owner/employee, or any attendee, pays an expense personally, they must submit an expense report detailing the expense, and the business must reimburse that expense in order to get the deduction.
SELLING VIA THE SHOW ROUTE
Similar tax deductions are available where the business has a promotional or sales booth at a show. Even better, the deductions are not limited to selling at an industry-related trade show or convention.
Surprisingly, there is nothing in our tax laws or regulations that mandates attendance at conventions, tradeshows, or at other events must be industry-related. This is especially true when the event is used to sell or promote the car care equipment and supplies business. As with show attendance, the basic requirement is that there must be some business benefit from the expenditure.
Under the tax laws, it is immaterial whether the booth set up at a show is for the purposes of promoting the business, its products, or services — or for the purpose of selling those 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.
In the past, some expenses in-curred in creating a unique display or booth were not immediately deductible. Today, thanks to the Tax Cuts and Jobs Act, displays or booths, whether used only once or not, qualify for an immediate tax deduction. The 100 percent bonus depreciation write-off, along with the Section 179, first-year expensing deduction is an alternative resulting in an immediate write-off of exhibit costs.
TRAVEL, MEALS AND ENTERTAINMENT
Although the TCJA appears to have wiped out many show attendance-related expense deductions, some remain, at least for a business. If, for example, business is conducted during a meal, a deduction may be available. Of course, a deduction of 50 percent of the cost of meals incurred while traveling away from home on business is still the rule.
The tax laws limit the business meal deduction to only 50 percent of the expense. Not too surprisingly, the rules regarding this issue contain quite a few gray areas. If, for instance, the business foots the bill to take employees to a conference, the full amount of their meals is deductible by the car care business. The 50 percent rule applies only to the business owner.
If, on the other hand, a meal immediately precedes or follows a substantial business meeting, only 50 percent of the cost can be deducted — so long as it was not “lavish or extravagant.”
If, for instance, an equipment distributor provides meals in a hospitality suite at a convention with the clear intent of generating business, the cost is usually deductible. Other meals, outside, that were purely for goodwill purposes, may not qualify as “directly-related” to the business. Under the TCJA, meals during business travel and meals at a seminar or conference are 50 percent deductible.
MIXING BUSINESS AND PLEASURE
Generally, taking extra days for a mini-vacation won’t result in the loss of the show-attendance deduction reimbursed by the car care business. The tax rules permit a deduction for the total travel costs if the main purpose of the trip is attending a convention, trade show, or conference.
When combining a vacation or side-trip with convention attendance, a good rule to follow is to spend more days on business than on pleasure. Lodging expenses cannot be deducted for personal days, but purchasing a reduced-fare ticket requiring stay-over days, means lodging costs for stay-over days is permissible.
As mentioned, when mixing business with pleasure, round-trip travel is fully deductible if more days are spent on business than on pleasure. Days spent traveling are usually considered business days.
When traveling by car, the standard mileage deduction for the year of travel can be used. The standard rate for use of a car, pick-up, or van for business travel is 58 cents per mile, up from 54.5 cents for 2018.
FRIENDS, FAMILY, AND OTHERS
When friends, family, or other guests accompany an attendee to a show, convention or conference, only the business-related portion of the expenses can be deducted. And again must be reimbursed by the business since those employee business expenses are gone.
In other words, deducting the cost of the family’s hotel suite is a no-no. Instead, deduct the cost of a single room.
If a bona fide business purpose exists for the individual’s presence and can be proven a tax deduction might result. Incidental services, such as keeping notes or assisting in entertaining customers, are not enough to make the expenses deductible. The travel expenses of someone accompanying an attendee can be deducted if that person:
• Is an employee of the business
• Has a bona fide business purpose for the travel
• Would otherwise be allowed to deduct the travel expenses.
A car wash or car care business successfully clearing the hurdles created by our lawmakers, with the proof to support it, may be able to deduct the entire cost of an employee, shareholder, or owner attending a convention, show, or conference trip (subject to the usual 50 percent limit on meals and entertainment) minus any personal expenses incurred. However, the rules are tighter if the event is held outside the North American area.
In order to deduct the expense of attending a trade show or convention held outside the North American area, the car care business must show that the event is directly related to the active conduct of the car wash operation, and it is as reasonable for the event to be held outside the North American area as it is to hold it within the North American area.
THOSE DREADED RECEIPTS
While receipts for expenses of $75 or less are not required, a copy of all charges, as well as a copy of the convention schedule/agenda can help prove the event is relevant to the business. In fact, whenever business expenses are claimed, it’s usually a good idea to keep detailed records and receipts for everything. They often serve as a reminder of a deductible expense, especially where the payment was in cash.
Also keep in mind that while there is no overall dollar limit on the amount that can be deducted for the expenses incurred for employees, shareholders, or owners attending a trade show, costs that are “lavish and extravagant” cannot be deducted. What’s more, deductions are limited to only 50 percent of the cost of meals.
On the downside, when it comes to events for investment, political, social, or other purposes unrelated to business, only a limited expense deduction may be available. If the trip is strictly a disguised vacation, business travel expenses cannot be deducted. However, that 50 percent deduction for business-related meal expenses may be permitted.
Additional guidance is available from the IRS in “Publication 463: Travel, Entertainment, Gift and Car Expenses.” A copy of this publication is available at: www.irs.gov/formspubs. The operator, owner, or manager of any car care business needing additional help with this most confusing area of our tax rules might seek professional advice.
Mark E. Battersby is an Ardmore, PA-based freelance writer, specializing in finance and tax issues.