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Lane
Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3638
Experience:  Providing Financial & Tax advice since 1986
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Hello, I have a question about business travel deductions.

Resolved Question:

Hello, I have a question about business travel deductions. I am taking a cruise in November to the US Virgin Islands. I am a self employed doctor, and am curious as to ways that this trip can become tax deductible. I understand that a cruise ship can be deducted as transportation to and from my business destination, but what qualifies as a legitimate business meeting? Do I need to find a seminar/convention in one of the destinations, or will it suffice if I were to meet with one of my colleagues there and discuss patient care and business practices for 4-6 hours? This cruise is 7 days. I also live in Dallas, and am flying to Miami to catch the cruise, is the flight also tax deductible? Thank you for any help you can offer!
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

Please don't shoot the messenger here, but the basic idea is that the trip must be FOR a business reason.

NPVAdvisor :

You CAN deduct business travel costs WHILE ON a personal trip.

NPVAdvisor :

For example, if you are visiting family in another city and you make an appointment to see a client, your costs for that appointment are deductible business expenses, but you can't deduct any other travel costs since the trip was primarily personal.

NPVAdvisor :

The IRS considers these business activities as "incidental" to the main purpose of the trip, which is personal travel, stating, "The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip."

NPVAdvisor :

Here's a great article on the subject

NPVAdvisor :

It will be easier to plan your business trips, and to combine business with vacation when possible, if you become familiar with the IRS's ground rules.

NPVAdvisor :

Expenses must be ordinary, necessary and reasonable. A travel expense is a type of business expense. Therefore, you must be able to meet the general business expense requirements in order to claim a deduction.

NPVAdvisor :

Allocation Required if Travel Combines Business and Pleasure

NPVAdvisor :

The primary purpose of a trip is determined by looking at the facts and circumstances of each case. An important factor is the amount of time you spent on personal activities during the trip as compared to the amount of time spent on activities directly relating to business

Customer:

so had I booked a convention/seminar first, and then booked the cruise as means to get there, that would become deductible?

NPVAdvisor :

If the trip is primarily personal in nature, none of your traveling expenses are deductible. This is true even if you engage in some business activities while you are there. (However, you may be able to deduct particular expenses you incur while you're at your destination if they otherwise qualify as "business deductions)

NPVAdvisor :

It has top do with the purposes of the trip, not which booking came first

NPVAdvisor :

The IRS uses a doctrine called substance over form

NPVAdvisor :

They'll put it to what they call the "reaonable person" test (looking at it through the eyes of a person who reatched you while you were there

NPVAdvisor :

Here's a good article on what things qualify as business deductions ... it's on those items that you'll make the best case for being perceived by the reasonable person as "business expenses."

NPVAdvisor :

Here's the IRS guidance itself

NPVAdvisor :

From there ....

NPVAdvisor :

Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Generally, employees deduct these expenses using Form 2106 (PDF) or Form 2106-EZ (PDF) and on Form 1040, Schedule A (PDF). You cannot deduct expenses that are lavish or extravagant or that are for personal purposes.

NPVAdvisor :

You can certainly get some mileage from this one:

NPVAdvisor :

Instead of keeping records of your meal expenses and deducting the actual cost, you can generally use a standard meal allowance, which varies depending on where you travel.


The deduction for business meals is generally limited to 50% of the unreimbursed cost.

NPVAdvisor :

Again, sorry to have to be the bad news messenger here (although there is SOME good news), but hopehully, having all the facts will help you "see around some corners."

NPVAdvisor :

Found another one:

NPVAdvisor :

Philip Panitz, a tax litigator at Panitz & Kossoff in Westlake Village, Calif., once had a physician try to deduct his wife's snorkeling expenses in Hawaii while he was at a medical seminar.


"In his eyes, that was worthy of a deduction, because if it wasn't for the business trip, she wouldn't be there snorkeling," he says.


Not legitimate.

NPVAdvisor :

Still with me?

NPVAdvisor :

BotXXXXX XXXXXne here? have WRITTEN evidence of costs at meals, meeting places, all those kinds of things that can't really be question as to whether they were business and use as many of those as possible

NPVAdvisor :

Note this part of that last article:

NPVAdvisor :

"The easiest and most efficient way is to write on the back of each slip the following: reason of the expense, name of the person you met, the location and date," says Paul Golden, spokesman for the National Endowment for Financial Education."

NPVAdvisor :

Each year, many people don't, yet still try to deduct as many of their business travel expenses as they can, tax experts say

NPVAdvisor :

I still don't see you coming back into the chat ... (I'll move us to the the "Question and Answer" mode) ... maybe that will help ... We can still continue a dialogue there, just not in real time as we can here

NPVAdvisor :

Let me know if I can help further

NPVAdvisor :

Again, I hope you'll rate my answer based on it's thoroughness and accuracy, rather than any good news/bad news content AND let me know if you want to drill down on this some more

NPVAdvisor :

Thanks,

NPVAdvisor :

Lane

Customer:

Sorry, I logged in at a horrible time and had to return to seeing patients. If it's not too much to ask, can you point out what is incorrect in this reference then? http://bradfordtaxinstitute.com/Content/How-Safe-Harbor-Rules-Can-Audit-Proof-Your-Cruise-to-the-Caribbean.aspx From what I understood, the IRS treats your travel no differently on a cruise than it does if you were to fly. Meaning if you had a qualified business reason to go to St. Thomas then your travel costs to get there would be deductible the same wether you went by cruise (7 days or less) or by air? Please understand I am not trying to argue, just making sure I fully understand. The last thing I want to deal with is raised eyebrows from the IRS! Lol.

Customer:

Another reference www.cpa-connecticut.com/cruise-tax-deduction.html

Customer:

http:// www.cpa-connecticut.com/cruise-tax-deduction.html

Customer:

lol, sorry I'm trying to make it a clickable link for you http://www.cpa-connecticut.com/cruise-tax-deduction.html

Expert:  Lane replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 1 year ago.

Hi Joseph,

... just checking back in, as I never saw you come back into the chat.

Let me know if you have some specifics you'd like me to research (expenses that may qualify, etc.)

Otherwise, positive feedback is appreciated. That's the only way we get paid here.

Thanks, XXXXX XXXXX me know,
Lane
Customer: replied 1 year ago.

Sorry, I logged in at a horrible time and had to return to seeing patients. If it's not too much to ask, can you point out what is incorrect in this reference then? http://bradfordtaxinstitute.com/Content/How-Safe-Harbor-Rules-Can-Audit-Proof-Your-Cruise-to-the-Caribbean.aspx From what I understood, the IRS treats your travel no differently on a cruise than it does if you were to fly. Meaning if you had a qualified business reason to go to St. Thomas then your travel costs to get there would be deductible the same wether you went by cruise (7 days or less) or by air? Please understand I am not trying to argue, just making sure I fully understand. The last thing I want to deal with is raised eyebrows from the IRS! Lol. Another reference: http://www.cpa-connecticut.com/cruise-tax-deduction.html

Expert:  Lane replied 1 year ago.
Hi, no prob at all. In a meeting right now ... Will check out your reference and see if I can find a specific IRS citation.

Check back in an hr or so, if you would.

Lane
Expert:  Lane replied 1 year ago.

Hi, here's an article that puts what we were talking about, very well, into perspective ... nothing different from what we've already discussed, but he does it it in a positive way, and pulls the information out of IRS publication 463 in a way that relates very closely to YOUR situation and gives you the limitations and percentages that you have "hang your hat on,"

Vacation budgets are down, and IRS audits are up. But that doesn't mean combining a family vacation with business travel is a bad idea -- just that you have to be careful and do it right.

One option for reducing your travel budget, especially if you travel for work, is to let Uncle Sam pick up part of the tab by deducting part or all of your trip. Since some travel costs can be deducted as business expenses, there's nothing wrong with writing them off: It's why many professional organizations host their annual conferences at tourist hotspots.

You may be able to write off the cost of a trip to look for work, too.
Here are the rules you need to know:


Deductible business expenses when combining personal and business travel

The rules for travel-related tax deductions are complicated. If you want to avoid a trip to Audit City, check these tips along with your baggage:


1. Getting there. If the trip is primarily for business and within the U.S., the cost of your transportation is fully deductible both ways. If it's international, the trip has to be at least 75 percent business in order to write off your plane ticket. (Less than that and you can only deduct the percentage related to business.)


2. Cruises have special rules. To be deductible, a business-related cruise has to be aboard a ship registered in the U.S. and avoiding foreign ports. You can only deduct up to $2,000 a year regardless of the length or frequency of travel, and you have to file a detailed written statement with the tax return.


3. Overstay is OK but not covered. You don't have to work all day, party all night, and leave when your business is done. A few extra days on either end of the business purpose won't disqualify you for deductions. Just make sure the primary purpose of the trip is business, you have documentation, and you don't deduct any expenses related to the recreational part.


4. Fitting in the family. You can't deduct expenses for anyone who isn't involved in the business of the trip -- so unless they're employees, the trick is to find overlap with what you would have to pay for yourself anyway.

For instance, if you drive everyone in one car (yours or a rental), your deductible transportation got the entire family to the destination.

And if everyone shares a single hotel room, it's deductible too. Any fees for added occupants or an upgrade to a larger room to accommodate the family, however, aren't covered.


5. Eat out at half price. While on deductible business trips, your meals and those of your business associates are deductible at 50 cents on the dollar.

6. Fixing other fees. Any kind of travel tends to rack up several incidental costs -- taxi fares, Internet access fees, phone calls, tips, laundry charges. If these are in any way business-related, you can write them off -- including seminar and conference fees.

7. Track everything. This is an area of the law rife with abuse. Which means increased odds of the IRS asking you to justify your deductions. So if you travel for business, keep meticulous records: not just receipts, but anything that helps prove your business purpose -- itineraries, agendas, programs, and the like.

8. Be reasonable. The IRS can call foul on extravagant expenses. So, unless it's typical in your business, don't rent a Rolls or take a penthouse at the Ritz. Expenses should be "reasonable based on the facts and circumstances."


BotXXXXX XXXXXne? If you like the idea of budget travel, learn what's tax deductible and let tax savings pay for part of the trip. While this is an area that can invite scrutiny, don't ever shy away from taking deductions you're entitled to. But don't be careless: Don't claim a vacation was a "business trip" just because you kept up with work emails or popped into a branch office in Orlando on the way to Disney.


The IRS is clear: "The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip."

http://www.irs.gov/publications/p463/


The site you linked says pretty much what we've already said but in a way that is (in my opinion) peculiarly skewed toward taking cruises. If you'll look at the numbers. however, you'll see that the substance is pretty much the same).


What they call a safe harbor, IRS publication 463 calls a limitation.



In my opinion this tax topic, (from the proverbial horse's mouth, IRS) does a pretty good job of outlining it.

http://www.irs.gov/taxtopics/tc511.html

 

 

Hope this helps

 

Lane

 

Customer: replied 1 year ago.

Very informative, thank you. It seems that there are ways to do it, but I don't know if I want the hassel! I did however find a medical related one day seminar at one of my destinations, basically for continuing education, should be easy enough to document.

Expert:  Lane replied 1 year ago.

Yes, the location is one that makes it hard to justify as a complete business purposes trip, but one that DOES, however, support seminars, conventions, etc. (Which in turn supports the idea that many of your lunches and dinner's COULD be used for business purposes).

If you wanted to make the case that you were investigating opening a practice there, it becomes MUCH more favorable.

And of course, if there are other doctors there for ANY seminars, I suppose that almost every lunch and dinner could be used for the purpose of prospecting for, say, a partner, or searching for "best practices?"

Also, stumbled into this, if you want to go to the trouble, of setting something up. These folks do Financial & practice management seminars for Doctors , dentists, etc (and I noticed that they advertise Virgins Islands as one of the locations)

http://www.mcgillhillgroup.com/speaking_engagments.asp

http://www.mcgillhillgroup.com/continuing_education.asp



... wouldn't be doing my job if I didn't give you the risk management piece here, however.



Lane

A positive rating is appreciated, as that is how we're paid. Thanks
Customer: replied 1 year ago.

That is funny that you say that, because I actually came across an interesting opportunity to purchase part of a practice there yesterday. What type of documentation would I need to show that I actually went there for that purpose, should I choose to investigate that further? I know you have gone above and beyond for me, and promise an extremely positive review today!!

Expert:  Lane replied 1 year ago.


Yes, section 2031 of the Jobs Act now allows small business owners to take an immediate $10,000 deduction against qualifying start-up costs by filing for a 195 deduction on IRS Form 1120, 1120S, or 1065 or as an “Other Expense” on the Schedules C or F of the 1040 form.

Section 2031 of the Jobs Act allows a deduction for any qualified start-up expenses up to $10,000 but requires a dollar for dollar reduction if the expenses exceed $60,000. Typically, what qualifies as a start-up expense includes any costs related to the business prior to opening. These can include:

  • marketing research,
  • human resources,
  • legal fees,
  • employee recruiting,
  • consultant fees,
  • office supplies, and
  • rent

 

 

 

Here's the actual tax code with citation for your accountant:

 

§ 195. Start-up expenditures

(a) Capitalization of expenditures.--Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures.

]

(b) Election to deduct.--

(1) Allowance of deduction.--If a taxpayer elects the application of this subsection with respect to any start-up expenditures--

 

(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of--

 

(i) the amount of start-up expenditures with respect to the active trade or business, or

(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and

 

(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.

 

 

 

(2) Dispositions before close of amortization period.--In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.(

3) Special rule for taxable years beginning in 2010.--In the case of a taxable year beginning in 2010, paragraph (1)(A)(ii) shall be applied--

 

 

(A) by substituting “$10,000” for “$5,000”, and

 

 

(B) by substituting “$60,000” for “$50,000”.

(c) Definitions.--For purposes of this section--

 

 

(1) Start-up expenditures.--The term “start-up expenditure” means any amount--

 

 

(A) paid or incurred in connection with--

 

(i) investigating the creation or acquisition of an active trade or business, or

 

(ii) creating an active trade or business, or

 

(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and(

B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.The term “start-up expenditure” does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.

 

 

 

(2) Beginning of trade or business.--

(A) In general.--Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe.

 

(B) Acquired trade or business.--An acquired active trade or business shall be treated as beginning when the taxpayer acquires it.

 

 

 

(d) Election.--

(1) Time for making election.--An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof).

 

(2) Scope of election.--The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.



26 U.S.C.A. § 195 (West)

 

 

Lane

 

Expert:  Lane replied 1 year ago.

Sorry Joseph, the formatting transfer from WestLaw was atrocious, but the code is there verbatim

Lane
Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3638
Experience: Providing Financial & Tax advice since 1986
Lane and 4 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.


Thanks so much!

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.



Thanks again,
Lane

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