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Columns by June Walker: IPs Face Unique Tax Challenges Tax Deductions Are There For The Taking You Say You're Self-Employed -- Will the IRS? Do You Have a Business or a Hobby? Proving That You're a Business Keeping Records -- It's Not Just for Taxes Three Ways to Expand Your Business Deductions Can I Deduct Disneyland and Other Questions Mixing Business with Pleasure and Other Gray Areas Getting There is Half the Battle Getting Credit and Taking Allowances Advertising: Do It, Then Deduct It The Subtle Art of Advertising Deductions Billy Bridesnapper's Start-up Saga Giving Gifts, Taking Deductions
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Business Travel Expenses: Part II Mixing Business with Pleasure and Other Gray AreasIn "Business Travel Expenses Part 1," I explained the kinds of expenses that constitute travel deductions and also let you know whether you could deduct the costs of bringing your spouse or someone else along on the trip. Let's look at other puzzling travel situations. Trips That are Both Business and Personal If you mix business and pleasure on a trip, deductions may depend upon whether you are traveling within the United States or outside the United States.
If you have enough money to do your business traveling by luxury ocean liner (the IRS calls it "water transport"), I'm sure you'll be talking to your accountant about how to write it off. But different rules apply to that kind of travel, so warn your friend Fanny Freelancer that there are restrictions on the amount she can deduct for her New York to London business cruise -- and she'd better check with her tax advisor. Also check with a tax advisor if you're heading to a convention outside North America. Too Busy (or Can't Be Bothered) to Get Receipts The IRS has tried to make recordkeeping for travel easier. Yet, as in almost all IRS rules and regulations, easier recordkeeping was not set up for IPs, but for employers and employees. In this case, self-employed people just happen to benefit from the crumbs that fall from the table. The IRS has issued per diem charts that list the maximum amounts allowed to be deducted without receipts. There is a column for "lodging" and one for "meals and incidentals." Self-employed people may use the amount for meals and incidentals only. They may not use the standard amount for lodging. (Maybe as our numbers grow we will establish some influence with the powers that be who write these regulations, and we'll get to use the lodging column, too!) This is how it works. Without receipts for daily meals and incidental expenses, you -- a self-employed person -- may deduct the IRS amounts as an alternative to tracking actual costs for your own meals, tips, and laundry. The rates vary from city to city and also may differ at different times of the year. To this meals and incidentals amount, you may also add your costs for transportation, lodging, meals and entertainment for business associates, and any other travel expenses. The government meals and incidentals amount is called the standard meal allowance or M&IE rate. The rates for the continental United States (referred to as CONUS) are available in IRS Publication 463, Appendix A. The rates may change yearly. For travel outside the continental United States, the rates are available in a publication called Maximum Travel Per Diem Allowances for Foreign Areas. You can order this publication by calling the Government Printing Office at 202-512-1800. However, the rates may change as often as every month, so it makes more sense to get the information online.
The amount the government allows you to deduct depends upon which region or city you sleep in (and in some cases which month you sleep there). The meals and incidentals amount for most areas in the United States for 1999 is $30 a day. High-cost domestic areas get you $34 to $46 a day. With receipts you may deduct any amount -- as long as it's not "lavish or extravagant." Consider your eating habits. If $30 a day adequately covers your meals and incidentals in a US city, use the government amounts. But my guess is that most people spend more than that. To look at per diem amounts outside of the United States, let's pick two of my favorite travel spots. One is Frankfurt, Germany, where my daughter and her family live. (My daughter and son-in-law are both writers. Are they business associates? You betcha. My grandchildren? Not yet.) The November 1999 rate for meals and incidentals there was $78. Another favorite spot is Guatemala. Anyplace outside Guatemala City has a rate of $54. It would be hard to spend $54 a day for meals in that beautiful country. So in this case the per diem rate is a good deal. Here are some tricky points to keep in mind:
Particulars Plan your business trips carefully and well in advance. Sarah Sculptor is going from her studio in Ghent, New York, to Boston for five days of art study, but will not be enrolled in a formal course. She should write to the museums for their schedules and to the galleries she plans to visit -- keeping copies of her letters. If she wants to arrange meetings with any of the gallery directors, curators, or art professors, she should make her requests to them in writing. Their responses -- the letters and envelopes, whether positive or negative -- should also be saved in her "Boston Trip -- 1999" file. When she is in Boston she should get literature from every gallery or museum that she attends. Any sketches done on the trip should be dated and placed: for example, "Boston 1999" should be written someplace on the sketch or sketchpad. She should also keep copies of all the follow-up letters and thank you notes that she sent to the directors -- if not for meeting with her then for at least taking the time to read her request and respond. If Sarah stays an extra day because she ran into an old college friend -- who is not in the arts and has no business connection to her -- she cannot deduct the costs of that day. But she does not have to prorate her travel to and from Boston. The trip does not have to show a profit. Cindy Set Designer was very happy to land the contract for designing the sets for the Long Wharf Community Theater. Even though it took 11 straight hours of driving to get there, at least she didn't have to rent a car while there. Her work lasted for three weeks, the pay wasn't very good, and she had to foot all her own expenses. But it was a good career step. Renting two rooms from a local resident was cheaper than staying at a hotel and eating out. There was no refrigerator in the place so she rented one. By the time she was done, her expenses about broke even with what she was paid. But she knew that adding this prestigious theater to her resume would get her a higher fee at the next job. All her expenses were deductible -- including rental of the refrigerator. Be careful how much time you play when you could be working. Placido Playwright travels from New York to London to attend a five-day course in scene blocking for theatre in the round. Before returning to New York he takes a four-day vacation in Paris. He flies back to New York from Paris. He may deduct all his London expenses. The expenses he incurred to travel to Paris will not be deductible. And Placido must prorate whatever the airfare would have been had he traveled only from New York to London and back. He may deduct only 5/9ths of the airfare. Paul Public-Relationsguy mixes business and pleasure on his convention trip to Mexico. The industry convention is held in Puerto Vallarta. He spends five days at the convention and spends the following three days sailing and scuba diving at a resort. The two travel days -- the day the trip began and the day it ended -- are counted as business days. Paul was out of the United States for a total of ten days. The allocation rules on foreign business travel apply. Paul is outside the United States for more than one week and spends less than 75 percent of his time on business -- seven business days out of ten is 70 percent on business. He must allocate his transportation expenses. He can deduct only $700 of his $1,000 airfare because only 70 percent of his days were related to business activities. Paulette Public-Relationsgal went to the same convention in Mexico as Paul. However, she limited her scuba diving to two days. Her foreign trip lasted longer than one week (5 convention + 2 travel + 2 scuba = 9 days) but more than 75 percent of the time outside the United States was spent on business matters, (7/9 = 78 percent). Paulette may deduct her entire round trip airfare of $1,000. Travel as a form of education may no longer be treated as a business expense. For example, Jack Japanese Instructor may deduct a trip to Japan to take courses in Japanese and Japanese culture or history. He may not deduct the costs of a trip to Japan where he just travels around the country soaking up the culture. If the trip is primarily a vacation, there is no deduction for travel costs to and from the foreign location. Just because Jack Japanese Instructor took a one-day Haiku course during his ten days in Japan does not make the airfare or any of his other expenses deductible. Only the cost of the one-day course is deductible. Here are some travel tips:
Whether you're traveling alone or with a group of friends, whether the trip is mandatory (your client insists that you install hanging bronze dolphins) or not (a chance to study with a 98-year-old master who may not be around next year), it is complicated and difficult for an IP to distinguish between personal life and business life. Choose your business travel wisely. Plan ahead. Refer to these columns before your next trip. Send 1099 a letter about your business travel expenses! (c) 2000 June Walker. All rights reserved. We'd love to hear your feedback about this column, or put you in touch with June Walker if you like. You may also like to see her biography. |
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