Industry events such as the Water Garden Expo in February are a good way to gain know-how, find new suppliers and network with others in the industry. Best of all, Uncle Sam, in the form of our tax laws, is willing to pick up the expense of attending many of these events — at least for some.
Bottom line, a garden pond business can deduct all non-extravagant “ordinary and necessary” expenses for attending business-related meetings, conferences, shows and other events. With certain limits, allowable expenses include travel, lodging, meals and associated out-of-pocket costs.
Unfortunately, many deductions for show attendance previously claimed on the personal tax returns of attendees were suspended by the Tax Cuts and Jobs Act (TCJA), the same bill that put an even bigger crimp in the allowable meal and entertainment deductions.
New TCJA Rules
The TCJA eliminated deductions for some itemized deductions on the tax returns of individuals until 2026. Targeted were miscellaneous itemized deductions subject to the former 2-percent floor. That means that unreimbursed employee business expenses (including expenditures for travel, lodging, meals, entertainment, continuing education and others) can no longer be claimed.
For the pond retailer, distributor, builder or supply business to take the deduction, it must have the convention expenses on its books. If any attendee personally pays an expense, they must submit an expense report detailing the expense, and the business must reimburse that expense in order to get the deduction.
Although it isn’t completely clear how TCJA applies to business meals, no deduction will be allowed for entertainment. The term “entertainment,” as used in our tax laws, means any activity that is generally considered to constitute amusement or recreation, such as night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events and trips for hunting, fishing or vacation.
Under the new law, entertainment is no longer deductible, although no change was made to the 50-percent deduction for business meals or the 100-percent deduction for expenses incurred for recreational, social or similar activities primarily for the benefit of employees.
Travel, Meals & Entertainment
Although the TCJA appears to have eliminated many show attendance-related expense deductions, some remain, at least for a pond-related business. If, for example, business is conducted during the course of a meal, a deduction may be available. Of course, a deduction of 50 percent of the cost of these meals as well as those incurred while traveling away from home on business is still possible.
Although the tax laws limit deductions for business meals to only 50 percent of the actual expense, the rules in this area contain quite a few gray areas. If, for instance, the business foots the bill to take employees to a conference, the full amount of their meals is deductible by the pond business. The 50-percent rule applies only to the business owner.
In fact, if a meal immediately precedes or follows a substantial business meeting, 50 percent of the cost can be deducted. If a manufacturer, distributor or supplier provides meals in a hospitality suite at a convention with the clear intent of generating business, the cost is usually deductible. Other meals that were paid for purely for goodwill purposes may not qualify as directly related to the business. Again, under the TCJA, meals during business travel and meals at a seminar or conference are 50-percent deductible.
Because entertainment-related meals are now treated differently from customer or client business meals, it may be necessary to account for each separately. Today, customer-related business meals are deductible only if they are not lavish or extravagant and only if the business — or a representative &151; is present. Because entertainment expenditures are no longer deductible, it is necessary to actually conduct business with the customer in order for the meal to be deductible.
Mixing Business & Pleasure
Generally, taking extra days for a mini-vacation won’t result in the loss of the show-attendance deduction. The tax rules permit a deduction for the total travel costs when the main purpose of the trip is attending a convention, trade show, meeting or conference.
When combining a vacation or side-trip with convention attendance, a good rule is to spend more days on business than on pleasure. When mixing business with pleasure, roundtrip travel is fully deductible if more days are spent on business than on pleasure. Days spent traveling are usually considered business days.
Obviously, lodging expenses cannot be deducted for personal days, but purchasing a reduced-fare ticket requiring stay-over days means that deducting lodging costs for stay-over days is permissible.
When traveling by car, the standard mileage deduction for the year of travel can be used. The standard rate for use of a car, van or pickup truck is up 3.5 cents from 2018 to 58 cents per mile for business travel in 2019.
Friends, Family & Others
When friends, family or other guests accompany an attendee to a show, convention or conference, only the business-related portion of the expenses can be deducted. In other words, deducting the cost of the family’s hotel suite is a no-no. Instead, deduct the hotel’s listed cost for a single room.
Incidental services, such as keeping notes or assisting in entertaining customers, are not enough to make the expenses of a spouse or family member deductible. However, if a bona fide business purpose exists for the individual’s presence and can be proven, a tax deduction might result. The travel expenses of someone accompanying an attendee can be deducted if that person is an employee of the business, has a bona fide business purpose for the travel and would otherwise be allowed to deduct the travel expenses.
Any pond business clearing the hurdles created by our lawmakers with the proof to support it may be able to deduct the entire cost of attending meetings, conventions, shows or conferences (subject to the usual 50-percent limit on meals and entertainment) minus any personal expenses incurred. However, the rules are tighter if the event is held outside the North American area or on a cruise ship.
In order to deduct a cruise-ship convention, meeting or other event, even more stringent rules exist. First, the cruise ship must be a U.S.-registered vessel. Next, the ship must make all its ports of call in the United States or U.S. possessions.
Finally, the tax law limits cruise ship convention deductions to only $2,000 per year. And, don’t forget, you will need to provide a signed, written statement stating the total days spent on the ship and how many hours were devoted to business each day. You’ll also want another statement from an officer of the sponsoring group or organization confirming both the scheduled activities and the attendance of the participant.
Those Dreaded Receipts
While receipts for expenses of $75 or less are not required, when attending a show, meeting or conference, a copy of all charges, as well as a copy of the convention schedule or agenda, can help prove its relevancy to the pond business. Although the business may not be required to keep all receipts, it doesn’t hurt to do so.
In fact, whenever business expenses are claimed, it’s usually a good idea to keep detailed records and receipts for everything. They often serve as a reminder of a deductible expense, especially where the payment was in cash.
Also keep in mind that while there is no overall dollar limit on the amount that can be deducted for the expenses incurred while attending a trade show, costs that are “lavish and extravagant” cannot be deducted. What’s more, everyone is limited to a deduction of only 50 percent of the cost of meals.
To recap, as with the travel and lodging expenses of other business trips, the primary reason for attending a conference must be business related in order to qualify for deductions. When it comes to events for investment, political, social or other purposes unrelated to business, only a limited expense deduction may be available. If the trip is strictly a disguised vacation, business travel expenses cannot be deducted. However, that 50-percent deduction for business-related meal expenses may be permitted.
Additional guidance is available from the IRS in “Publication 463: Travel, Entertainment, Gift and Car Expenses.” A copy of this publication is available at www.irs.gov/formspubs. The owner or manager of any garden or pond business needing additional help with this most confusing area of our tax rules is advised to seek professional advice.