Daniel Cullinane CPA

25 Plaza 5 25th fl Jersey City NJ                                          phone 732-516-1648 fax 732-516-9778

MBA Taxation

Daniel Cullinane CPA

2500 Plaza 5 25th fl  Jersey City NJ 07311                                                          phone 732-516-1648  fax 732-516-9778

                 MBA TAXATION                                                                                                         

Copyright ©​ Daniel Cullinane CPA.

EXPENSE DEDUCTIONS

DOMESTIC TRAVEL FOR BUSINESS AND PLEASURE


You might travel around the country and dabble in business and pleasure on the same trip.

Round-trip travel expenses are deductible only if the trip is related primarily to your trade or business.

If the trip is primarily personal in nature, you don't qualify for a write-off.  However, your expenses at the destination that properly relate to your trade are deductible even though the round-trip travel expenses aren't.


SATURDAY NIGHT STAY-OVER RULE


Not satisfied with just partial write-offs when you mix business and pleasure?

Even the IRS agrees there's a way to deduct all your expenses with no questions asked.

The trick is to use a Saturday night stay-over to reduce the overall cost of the business trip.  If you can show the air fare savings offset the costs of staying for the extra personal days, go ahead and deduct all your expenses.  Of course, you must have a dominant business purpose for making the trip.

In using the Saturday night stay-over scheme, make sure you nail down your deductions by carefully documenting the air fare savings and comparing them to the extra costs of staying the extra days.


TRAVEL EXPENSES FOR SPOUSE OR OTHER FAMILY MEMBERS


The travel, meal and lodging expense your spouse or companion incurs when accompanying you on a business trip are deductible if your spouse works for your company and his or her presence serves a bona fide business purpose.

Incidental services, such as typing notes or entertaining customers, aren't enough.  The same goes for companions and other members of your family.

If your spouse tags along on a business trip without a bona fide business purpose, the deductible business expense for transportation and lodging is the single-rate cost of similar accommodations.

Of course, if your spouse or companion is an employee of another company, his or her employer can deduct the expenses if the trip has a business purpose for  that firm.  Also, if a spouse or companion is self-employed in his or her own business and has a business reason for making the trip, expenses can be written off.


FOREIGN BUSINESS TRIPS


If you travel abroad and devote all your time to business, your travel expenses are fully deductible.  But you or your employer should make sure that a meeting on foreign soil is necessary, especially if you combine work and pleasure.

Otherwise, the IRS might disallow deductions for expenses incurred during conventions or similar meetings outside the "North American area."  While this rule sounds strict, it really isn't because the IRS considers North America to include all the following spots: American Samoa, Antigua and Barbados, Bermuda, Canada, Costa Rica, Dominica, Dominican Republic, Grenada, Guam, Guyana, Honduras, Jamaica, Marshall Islands, Mexico, Micronesia, Midway Islands, Netherlands Antilles, Northern Mariana Islands, Palau, Panama, Puerto Rico, Trinidad and Tobago, U.S. island possessions and the U.S. Virgin Islands. (IRS Revenue Ruling 2011-26) For all these locations, you have to show only that the convention had a legitimate business purpose and attending it was the primary reason for your travel.

To determine what's reasonable, the IRS looks at:

  • The purpose of the meeting and the activities taking place there.
  • The purpose and activities of the sponsoring organizations or groups.
  • The residences of the active members of the sponsoring organizations and the places at which these organizations or groups have held or will hold other meetings.

​As a rule, the IRS doesn't think it's "reasonable" to hold your gatherings on a cruise ship.  However, there's an exception.  An annual deduction of up to $2,000 is allowed for a business-related convention on a ship that's registered in the United States and makes all its calls at ports located within the United States  or its possessions.

 



TEMPORARY ASSIGNMENTS

Suppose you regularly work within the city or within the general area of your residence.  But sometimes, you have to work or conduct business at another location, and it isn't practical to return at the end of each day.  If the work away from your regular post is strictly temporary, the location of your tax home doesn't change; you're considered to be away from home for the entire temporary period.

Work away from the regular post of duty is temporary if you can foresee its termination within a reasonably short time.  An assignment that's expected to last for a year or more isn't considered temporary.

You can deduct necessary, round-trip travel expenses between your residence and your temporary assignment.  You also can deduct reasonable expenses for meals and lodging while at your temporary location, even for days off.

INDEFINITE ASSIGNMENTS

You might be assigned to work at (or you might shift your business to) a new location for an indefinite period of time; you don't know when - or if - your new assignment will end.

In that case, the new location becomes your new tax home, and your can't deduct expenses for travel, meals and lodging while you're there.  Also, the allowances for living expenses you receive from your employer must be treated as taxable income, even though they might be called travel allowances and you're accountable for them.

Whether an assignment is temporary or indefinite must be determined at the time work begins.  But a series of assignments to the same location, all of which together cover a long period of time, might be considered an indefinite assignment.

REQUIREMENT OF OVERNIGHT TRAVEL

For tax purposes, you aren't traveling away from home unless you stay away overnight.

The Supreme Court has upheld an IRS rule that a traveler can deduct meals and lodging on a business trip only if he or she is away at least overnight - or long enough to require rest or sleep.  Otherwise, per diem allowances from the employer are treated as taxable income.


SALESPERSON'S "TAX HOME"

A salesperson may live on the border of his working territory or may even live outside his working area.  Her uses his residence as a base, travels to the sales territory to visit customers and returns to his residence.  

If that sounds like your arrangement, the IRS says you can deduct expenses for the trip from home to your first sales call of the day and from your last sales call back to home only if the home office is your principal place of business. (IRS Revenue Ruling 99-7)  For outside salespeople, this was unlikely to be the case before 1997.  The principal place of business was considered outside the home office because outside salespeople earn their income from visiting customers sites.

However, thanks to a 1997 law change, a home office now counts as your principal place of business if it's used regularly and exclusively to conduct administrative or management functions and you have no other fixed location that's used for such activities.

As has always been the case under tax law, your office is also your principal place of business if that's where you conduct most of your income-earning activities.  The regular and exclusive use requirement applies in either scenario.  Regardless of the status of your home office, you can always deduct the cost of traveling from one temporary business location to another during the day.

And even if your home doesn't qualify as your principal place of business, you may still be able to claim deductions for the trips from home to your first temporary work location and from your last business location back home.

TWO PLACES OF BUSINESS

If you regularly work in two or more separate areas, your tax home is the general area where your principal employment or business is located.  The principal place of employment or business is determined by the facts of each particular case.  The most important factors are:


The total time you ordinarily spend performing duties in each area
The degree of business activity in each area
The relative significance of the financial return from each area​

Cost of traveling to and from the minor place of employment, as well as meals and lodging at the minor post, are deductible, provided that the travel is away from home.

If you spend more time and earn more money at Location A than at Location B, Location A generally is considered your principal place of business - even if you live at Location B.  If you spend more time at Location A but earn more money at Location B, there's no clear-cut rule.  The IRS is likely to accept either location as your principal place of business.

TRAVEL EXPENSES

You can deduct the costs incurred in traveling away from home on business(including 50% of meals and 100% of lodging ) and costs for local transportation on business.

TRAVEL EXPENSES IN PURSUIT OF A TRADE OR BUSINESS

Travel expenses ( including meals lodging and other defined incidentals) are ordinary and necessary costs you ring up while traveling away from home on business. These expenses include
Meals (subject to the 50% rule) and lodging both in route and at the destination
Air rail and bus fares and baggage charges
Cost of transporting sample cases
Expenses for sample display rooms
Cost of operating and maintaining a car
Cost of maintaining an airplane including depreciation on the airplane hangar
Reasonable cleaning and laundry expenses
Telephone and fax expenses
Cost of a public stenographer
Cost of transportation from an airline train or bus terminal to the hotel and back
Reasonable transportation costs between restaurants or hotels and temporary work sites
Tips and other incidental travel expenses

TRAVEL EXPENSES AND INCOME PRODUCTION


You are entitled to write off ordinary and necessary expenses that you incur to produce or collect income, to manage ore maintain income producing property or to calculate or collect a tax refund. If you take a cab to your broker's office, you can deduct the fare


INVESTMENT SEMINARS AND CONVENTIONS

The tax law prohibits deductions for the costs of attending conventions, seminars or similar meeting for investment or income producing purposes unrelated to your trade or business.

TRAVEL AS A FORM OF EDUCATION

Tough restrictions are imposed on deducting he cost of so called educational trips. For example a Spanish teacher who uses his summer vacation to travel to Spain to improve his knowledge of the culture and language may not deduct his travel expenses. However an anthropologist can deduct the cost ot traveling to Egypt to study ruins as long as the research is part of her job.

EXPENSES TO SEEK NEW EMPLOYMENT


These expenses are deductible as long as you are looking for a job in your current line of work.

NEW BUSINESS LOCATION

You cannot deduct your travel cost for scouting new locations for your business, plant or branch. Nor can you write off travel expenses for seeking locations for a brand new business or start up. In both cases, these travel expenses must be capitalized and added to the cost of the new property. You can depreciate the property later. Note, though that the cost of an unsuccessful attempt to acquire a specific business generally is deductible

SEEKING FOREIGN MARKETS FOR EXISTING PRODUCTS

If you travel abroad to seek foreign markets for existing products, you may deduct reasonable travel costs while you are away from home. Entertainment expenses are not part of the cost of traveling, even if you incur them while away from home. They must be handled according to regulations that govern entertainment expenses.

MEALS AND LODGING WHILE TRAVELING

You can deduct half the cost of your meals and all your lodging expenses only if you are away from home in connection with your trade or business. Home for tax purposes is not always the place where you maintain your family residence.

DEFINING HOME FOR TRAVEL PURPOSES

For travel purposes home is your place of business, your employment station or your post of duty, no matter where your family lives. That is the rule issued by the IRS. The  courts have upheld the rule, although the Tax Court occasionally has held that a particular taxpayer's residence was his tax home