It’s tax time again, and this year, a number of new issues will impact meetings and conventions, especially in the realm of deductions claimed by attendees who pay their own way. Following is an update on the latest Internal Revenue Service changes and tips for how meeting professionals can make tax time easier for their attendees.
Probably the most significant change in 2006 is that the IRS has added agents to its ranks and announced it will conduct more audits of individuals this year.
In an era of increased scrutiny of business practices and spending, thanks in large part to the Sarbanes-Oxley Act of 2002, professionals will be under more pressure than ever to prove that any meeting expenses they deduct are legitimate.
In short, an expense must be related to the taxpayer’s (attendee’s) trade or business in order to be deductible. If the expense is not related or cannot be substantiated, the deduction will be denied by the IRS. The taxpayer must be able to demonstrate that the expenses incurred were “ordinary and necessary.”
While the definitions are subjective, the courts have reviewed the question of “ordinary and necessary” in a somewhat practical way. The key here is to be able to justify why the expenses were incurred during the meeting or convention and if they advanced the purpose of business.
THE PLANNER’S ROLE
How can meeting professionals assist? First, they can prepare collateral materials for meetings or conventions that stress the importance of the trade or business aspects of the event. In other words, the promotional materials, mailings and meeting directories, etc., should focus primarily on the business aspects of the event, rather than on the social angles, thus helping the attendee show the deductions were appropriate.
Meeting planners also can assist their attendees by minimizing costs that allow smaller deductions. For example, while attendee hotel accommodations are 100 percent deductible, meals and entertainment costs continue to be subject to a 50 percent limitation. (A meal is defined by the IRS as the total cost for food, beverage, tax and tip.) Knowing that, planners can make food and beverage costs a key focus of their negotiation efforts.
Other tips for keeping the tax man at bay: For business travel to be deductible, the Internal Revenue Code requires the taxpayer “be away from home,” with “home” generally defined as the place of business. In previous years, the IRS required attendees to be away overnight. Today, they can deduct meals and lodging on business trips, including meetings and conventions, as long as they are away from home long enough to require rest or sleep typically more than eight hours.
Rules governing spouse travel deductions also are more stringent. The only way deductions can be made for a spouse’s or a significant other’s expenses is when that individual is a bona fide employee of the attendee’s self-owned business.
Other deductions attendees might overlook: baggage and shipping costs incurred for business, dry cleaning and laundry expenses incurred during business travel, and gratuities to baggage handlers and hotel personnel.
Because our system of taxation is based on self reporting and documentation, good record keeping is key. Receipts or other forms of substantiation, such as detailed credit card bills, are required for any expense exceeding $75. For all of these costs, the taxpayer needs to clearly demonstrate how the deducted expenses relate to business.