TRAVEL, MEALS AND ENTERTAINMENT

Speaker - Paul Hodge CPA

I.      Introduction: My name is Paul Hodge

A.   Qualifications: I am a Certified Public Account with degrees in Accounting and Finance from the University of Texas A&M.  I am also getting accredited to teach continuing education for real estate agents.

B.   Experience: I have worked as a Controller and CFO for over twelve years at a variety of companies.  I started my CPA practice five years ago focusing on real estate and I have grown it into a successful business operating in both Houston and Dallas.  I am member of the Better Business Bureau. I am a RICH Club Gold Business Member and a real estate investor with twelve single family properties.

C.   Subject Matter – Tax deductible travel expenses, entertainment and meal expenses.

II.   Travel Expenses

A.   Definition: Business travel is when you must travel away from your home overnight for business.  Your trip must be primarily for business to be deductible.  Distance is not a factor, but the travel must be outside of the general area (your city).

Example:         1. An overnight trip from Houston to Galveston on business is a business trip.

  1. An overnight trip from North Houston to South Houston even though it may be farther is not a business trip.

B.   What is considered business intent and purpose for real estate investors

1.    Actively look for new investment properties.  Document areas that you are going to look at, price ranges of the properties, and business analysis of the investments.

 

2.    Contact and have meetings with real estate agents that are in the area.  Take agent’s business cards, brochures, record notes of the meetings, send e-mails and other correspondence to agents.

3.    If you have friends in the area that are also real estate investors then you can meet with them and share notes about the market potential.  You can also discuss the possibility of partnership arrangements.  This can be done over a meal or while entertaining.

4.    You should already be a real estate investor before making the trip.  It is not a business purpose if you are not already in the business.

5.    It is not necessary to put down a contract on property or purchase any property.  It is not necessary to actually achieve anything on your trip as long as the intent and purpose are defined and recorded.

C.   What expenses can I deduct

1.    Transportation expenses:  the cost of getting from here to there and back

a)    Driving expenses, taxis, car rentals

(1)  Driving to the airport

(2)  Parking at the airport

(3)  Shuttles to hotel

b)    Fares for trains, planes and buses

c)     Meals and lodging expenses that you incur during your trip

(1)  Meals at the airport

(2)  Any lodging at a layover destination

2.    Destination expenses: the cost to stay alive and conduct business at your destination.  Only deductible on business days.

a)    Hotel and other lodging expenses for business days

b)    Meals and drinks subject to 50% allowance

c)     Entertainment expenses subject to 50% allowance

d)    Internet, telephone and faxes

e)     Taxis, car rentals, and public transportation once you are at your destination

f)      Laundry and dry cleaning

g)    Tips you pay on any of these costs

3.    First class: You can go first class if you want to and stay at the nicest hotels, resorts, and eat at the most expensive restaurants.  I highly recommend it, if you can afford it.

D.   Who can go with me?

1.    Employees

2.    Partners

3.    Customers/Clients

4.    Family (if they are involved in your business as in 1, 2 or 3 from above)

5.    Professional advisers (It is highly advisable to take along your CPA so that he can help maximize your business deduction.  He can also advise you on fishing locations, good bourbon and great cigars.)

E.   What are my limitations?

1.    Transportation expenses:  All or nothing

a)    You can deduct 100% of your travel expenses if you spend more than half of your days on business activities while at your destination.

b)    If your personal activities are more than your business activities then you get to deduct 0%.

2.    How do I figure my business days?  Compare the number of days you spend on business with the days you spend on personal activities

a)    Any day in which you work for more than four hours.

b)    Any day when you must be at a particular place for your business (no time limit)

c)     Any day that you spend more than four hours on business travel

d)    Any day when you drive 300 miles for business.  It can be an average per day.

e)     Any day when your work and travel time exceed four hours.

f)      Any day sandwiched between two work days if it would cost more to go home than to stay (especially weekends)

F.   How do I maximize my travel deductions?

1.    Have a plan

a)    You should produce an itinerary of your trip to organize business and personal time

b)    Create a trip folder before you go and write your business purpose and business intent.

c)     Have the trip qualified as business with paperwork before you ever leave.

2.    Maximize your business days

a)    Work no more than four hours

b)    Spread your business meetings out over several days

c)     Avoid using the fastest means of transportation.  The longer it takes to get there the more business days you will have.

d)    Use the Sandwich Day rule to the fullest.  Plan trips that span over a weekend.

3.    Documentation

a)    Take notes in your day planner or a calendar, of meetings, places, people, purposes

b)    Business cards of contacts

c)     Write in your planner the work that you performed each day and amount of time

d)    Brochures of houses that you looked at and maps of locations

e)     Keep copies of business related correspondence and emails you sent and received on your trip.

III. Meals expenses:

A.   The meals expense is subject to a 50% limitation. That means you can only take a deduction for half your meal.

B.   What is a business meal?

1.    Any meal that you share with another business associate and discuss business.

2.    There is not a limit on the price of the meal or what is eaten, drank, or smoked.  Though I would do cigars as a gift and not as part of the meal.

C.   What is a business associate?

1.    Employees

2.    Partners

3.    Customers/Clients

4.    Family (if they are involved in your business as in 1, 2 or 3 from above)

5.    Professional advisers (It is highly advisable to take your CPA out for a good meal it helps with the accounting bill later.)

D.   Documentation

1.    Write down on the back of the receipt

a)    Who was there

b)    What is there business relationship to you

c)     Business discussed

d)    Date that you were there

IV.Entertainment

A.   The entertainment expense is subject to a 50% limitation. That means you can only take a deduction for half of the entertainment cost.

B.   What is business entertainment? Entertainment with business associates for business

1.    Taking a fishing or hunting trip (I like both of those)

2.    Golfing or tennis (the green fees or court fees are deductible, not the membership cost)

3.    Ski or beach resort

4.    Attending sporting events, professional or A&M games (football, baseball, basketball, and soccer)

5.    Concerts, movies, theater

6.    Cigar bars, comedy clubs, dancing

C.   How do I qualify it as business?

1.    Discuss business before or after the entertainment.

2.    There is no rule as to amount of business discussed, but it must be relevant to your business.

D.   Documentation

1.    Write down on the back of the receipt for the entertainment

a)    Who was there

b)    What is there business relationship to you

c)     How much time you spent in your discussion there (it could count as a business day for travel expenses)

d)    Business discussed (before or after)

e)     Date that you were there

V.  Conclusion

A.   Tax laws are always changing and they rarely ever make any logical sense.  It is not necessary to understand why the tax laws are in place, just how the system works.  The rules surrounding Travel, Entertainment and Meals are all on the honor system. (The IRS is not spying on you)

B.    Documentation is the key for your business travel, meals and entertainment deductions.  Keep in separate files for your different trips.  Keep meals and entertainment receipts together by year for audit purposes.

C.   Always consult a Tax Professional(CPA) for advice about your own tax situation.  Everyone’s tax circumstances are different and a good CPA will pay for themselves in saving you time and money.  Plan your vacations accordingly to maximize your tax benefits. Remember it is not what you make, but what you keep.

No Comments Yet.

Leave a comment