Workplace

Imagine an enjoyable and educational trip paid for by Uncle Sam. According to the Internal Revenue Service (IRS), owners and employees of companies (including shareholders) can legitimately claim an income-tax deduction for expenses incurred while attending trade shows, conventions and meetings.

The government will pay for many of your expenses incurred while attending a trade show or convention if you follow certain rules. Usually all that is required to qualify for convention-related tax deductions is that you be able to demonstrate that your attendance at an event benefited your business. However, there are restrictions.

Meal expense deduction

When it comes to meals, the IRS imposes quite a few restrictions—as well as a number of loopholes. Generally, expenses for meals include all amounts spent for food, beverages, taxes and related tips. Meals are labeled by the IRS as "entertainment," and the tax deduction generally is limited to 50 percent of the amount spent.

Under tax laws, business owners who attend a trade show or convention away from home overnight are permitted to use the actual cost of meals or a standard amount—a so-called "per diem allowance"—to compute the tax deduction for convention-related meals and incidentals. If you are reimbursed for those expenses, how you apply the 50 percent limit depends on whether your company's reimbursement plan is accountable or nonaccountable.

The standard meal allowance is the official Federal Meals and Incidental Expense rate. Since Oct. 1, 2006, the standard meal allowance has varied from $45 to $58 per day for most areas of the U.S. The maximum per diem rate, including lodging, varied between $148 and $246 per day during the last quarter of 2006 and into 2007.

When the standard meal allowance is used, records must be maintained proving the time, place and business purpose of any travel or convention attendance. Unfortunately, if you own more than 10 percent of your company, the standard meal allowance cannot be used.

Another option

The IRS' new Revenue Procedure provides an optional method for self-employed individuals and nonreimbursed employees to use when computing the deductible costs paid or incurred for business meal and incidental expenses.

Instead of using actual expenses to compute allowable incidental expenses incurred while attending a convention or trade show under an all-inclusive plan, nonreimbursed employees and self-employed individuals may claim a legitimate tax deduction for incidental expenses of $3 per day without the need to substantiate that claimed amount.

Bringing guests

If others accompany you to a trade show or convention, either you or your company can deduct your guests' travel expenses. However, this deduction is limited to guests who are employed by you; have a bona fide business purpose for the trip; or would otherwise be allowed to deduct those convention expenses.

For a bona fide business purpose to exist, an attendee must prove a business purpose for a guest's presence. Incidental services, such as typing notes or entertaining customers, no longer are adequate.

Further enjoyment

The IRS clearly states all travel expenses are tax-deductible if a trip is entirely business-related. And though a tax deduction may be available for business travel that also has personal aspects, certain factors—such as the travel destination—must be considered.

If a trip primarily is for business purposes and, while at a convention or trade show, you extend your stay to include a vacation, make a nonbusiness side trip or engage in other nonbusiness activities, you still may deduct your business-related travel expenses.

But if 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 that are directly related to attendance at the trade show or convention.

It must be noted certain restrictions apply to travel abroad. Consult your tax adviser for more information.

Education, fun and business

You can reap business benefits, education and enjoyment while attending a convention, trade show or meeting. And thanks to tax laws, expenses incurred during these events may qualify as a legitimate tax deduction.

Mark E. Battersby regularly addresses a variety of topics within tax and financial arenas.