Conventions: Enjoy the Show
— and the Deductions
By Mark E. Battersby

Imagine an enjoyable — and educational — vacation with Uncle Sam, in the form of our tax laws, picking up part of the tab. That’s right, every operator, owner, manager, and employee of a car wash business (even someone who is a shareholder/employee), can legitimately claim an income tax deduction for the expenses paid or incurred in attending tradeshows, conventions, and meetings.

Much has been said and written about the benefits of attending events such as the Southwest Car Wash Association’s Convention & Expo. Largely unheralded, however, are the tax-related benefits every car wash operator attending will enjoy. Quite simply, Uncle Sam, in the form of our tax laws, will underwrite a portion of the costs associated with attendance at the SCWA Convention & Expo, iFLEX, Car Care World Expo, or any trade show, convention, or meeting.

CONVENTION EDUCATION

Thanks to our tax laws, the government will pick up the tab for a sizable portion of your expenses while attending meetings, tradeshows, or conventions — if you follow the rules. Generally, all that is required in order to qualify for convention-related tax deductions is that you be able to show, if asked, that attending the tradeshow, meeting, convention, or other event benefited your car wash or detailing business.

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

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.

If, on the other hand, 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 attending the meeting, tradeshow, or convention.

DEDUCTING THE ESSENTIALS

The expenses incurred while traveling to the site of that meeting, convention, tradeshow, or other event are, as mentioned, tax deductible. The tax-deductible travel expenses include such expenditures as 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 all of the costs associated with attending the event itself.

ENTERTAINMENT ESSENTIALS

Although the costs of meals and lodging while away from home for business travel or attending meetings, conventions, and tradeshows are deductible, at least so long as they are not “lavish or extravagant under the circumstances,” the deduction for meals is limited to 50 percent of the total expenses. Food and beverage costs incurred in the course of travel away from home fall within the scope of the tax law’s limitation for meal and entertainment expenses that generally limits the deduction to 50 percent of such expenses.

The 50-percent rule is applied only after determining the amount of the otherwise allowable deductions. For instance, the portion of a convention-related meal that is lavish and extravagant must first be subtracted from the meal cost before the 50-percent reduction is applied. Related expenses, such as taxes and tips in the case of meals and other charges, room rental, and parking fees in the case of “entertainment” expenses, must be included in the total expense before applying the 50-percent reduction. Naturally, allowable deductions for transportation costs and other convention- or tradeshow-related expenses are not reduced.

BRINGING COMPANY

Should any attendee’s spouse, family members, or others accompany them to a meeting, tradeshow, or convention, either the attendee or his or her car wash business 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. Would otherwise be allowed to deduct the convention expenses

In order for a bona fide business purpose to exist, the car wash operator must prove a real business purpose for the individual’s presence. Incidental services, such as typing notes or assisting in entertaining, is no longer enough.

Consider an operator, Michael Peters who, along with his wife Mary, drove to Chicago to attend a convention. Because Mary is not an employee of Michael’s car wash business, 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, but only $90 per night for his hotel room. If he uses public transportation, he can deduct only his fares.

PER DIEM ALLOWANCE

As an alternative to the actual cost method, both self-employed car wash operators 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 car wash or detailing business in which you are more than a 10 percent principal, the standard meal allowance can’t be used.

In general, the IRS-approved per-diem rates are those paid by the federal government to workers on travel status. However, instead of using the actual per-diem rates for each locality, a simplified “high-low” per diem, under which there is one uniform per-diem rate for all “high-cost” areas within the continental United States may be used.

Under the optional high-low method for post-September 30, 2009 travel, the high-cost area per-diem rate is $258 ($2 more than the previous rate), consisting of $199 for lodging and $65 for Meals and Incidental Expenses (M&IE).

OPTIONAL METHOD FOR THE NON-REIMBURSED

A Revenue Procedure introduced by the IRS provides an optional method for both self-employed operators, as well as employees who are not reimbursed by their employers, to use in computing the deductible costs paid or incurred for business meal and incidental expenses. Thus, while attending a convention or tradeshow under an all-inclusive plan where meals are included, employees and self-employed operators may claim a legitimate tax deduction for incidental expenses of $5 per day without the need of substantiating that claimed amount.

BACKING UP DEDUCTIONS

In order to claim any tax deductions, every attendee 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.

Meals and incidental expenses while away from home on business, especially those related to attending a tradeshow or convention are a legitimate tax deduction — either the actual amounts spent or the standard M&IE rate provided by the government. Remember, however, although the amount of the deduction can be taken from tables published by the IRS, it remains necessary to prove (through adequate records or sufficient corroborative evidence) the time, place, and business purpose of the convention-related travel.

Documentary evidence, such as receipts or paid bills, is not generally required for expenses that are less than $75. However, documentary evidence is required for lodging expenses.

WHAT IF BY SEA?

The cruise-ship industry is not too happy about it, but for years our tax rules have permitted only a limited tax deduction for expenses incurred for attending conventions on U.S. cruise ships. The deduction is limited to $2,000 for all cruise-related convention expenses incurred during a tax year. This limited deduction is available only:

1. If all ports of call for the cruise ship are within the United States or a U.S. possession.
2. If the attendee can establish the convention was directly
related to the active conduct of his or her car wash business.
3. If certain specified information is included with the annual income tax return.

WRITING OFF EDUCATION, FUN, AND BUSINESS

Imagine reaping business benefits, an education, and enjoyment wrapped up in one trip. In reality, the agenda of the convention does not have to deal specifically with your car wash business; 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, Uncle Sam will pick up a part of the cost of attending those shows, meetings, and conventions.

Mark E. Battersby is an Ardmore, PA-based freelance writer who specializes in finance and tax issues.