Tax man cometh with deductions for you - Options for the non-reimbursed

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In order for a bona fide business purpose to exist, the woodworking professional or shop must prove a real business purpose for the individual’s presence. Incidental services, such as typing notes or assisting in entertaining customers, is no longer enough.

Consider a woodworking business owner, Michael, who along with his wife, Mary, drove to Chicago to attend a convention. Mary is not Michael’s employee. And even if her presence serves a bona fide purpose, her expenses will not be tax deductible.

Michael pays $115 per night for a double room. A single room costs $90 per night. He can deduct the total cost of driving his car to and from Chicago, but only $90 per night for his hotel room. If he uses public transportation, he can deduct only his fare.

As mentioned, as an alternative to the actual cost method, self-employed business owners, as well as employees, are allowed to deduct a standard amount, a so-called “per-diem allowance” for their daily meals and incidental expenses while attending a convention.

However, even when this standard meal allowance is used, records must be maintained proving the time, place and business purpose of any travel or convention attendance. Unfortunately, if your employer is related or is an incorporated woodworking business in which you are more than a 10 percent shareholder the standard meal allowance can’t be used.

The standard meal allowance is the official Federal Meals and Incidental Expense (M&IE) rate. After Oct. 1, 2007, the standard meal allowance has ranged between $45 and $58 per day for most areas of the United States. Maximum per-diem rate, including lodging, varied between $152 and $237 per day during the last quarter of 2007 and into 2008. Figures for the last portion of 2008 may change later in the fall.

Options for the non-reimbursed
The IRS’s new revenue procedure provides an optional method for self-employed woodworking professionals, as well as employees who are not reimbursed, to use in computing the deductible costs paid or incurred for business meal and incidental expenses. The optional method also covers incidental expenses only if no meal costs are paid or incurred while traveling away from home.

Incidental expenses means fees and tips given to porters, baggage carriers, bellhops, hotel maids, transportation between places of lodging or business and places where the convention, trade show or meeting is held or meals taken.

In lieu of using actual expenses in computing allowable incidental expenses paid while away from home, employees and self-employed individuals who do not pay or incur meal expenses may use an amount computed at the rate of $3 per day. Thus, while attending a convention or trade show under an all-inclusive plan where meals are included, employees and self-employed woodworking professionals may claim a legitimate tax deduction for incidental expenses of $3 per day without the need of substantiating that claimed amount.

Further convention enjoyment
The tax rules clearly state that all travel expenses are tax deductible if the trip to the convention or trade show was entirely business-related. Suppose, however that an attendee decides to combine that trade show attendance with a vacation?