Article Highlights:

• Primarily Business
• Primarily Vacation
• Special Circumstances
• Foreign Conventions, Seminars and Meetings
• Cruise Ships
• Spousal Travel Expenses

Note: effective for years 2018 through 2025, the Tax Cuts and Jobs Act of 2017 suspended the deduction of miscellaneous itemized expenses that must be reduced by 2% of the taxpayer’s adjusted gross income. Employee business expenses, including travel expenses, fall into this category. Therefore, this discussion only applies to self-employed individuals for years 2018-2025.

When a self-employed individual makes a business trip outside of the U.S. and the trip is 100% devoted to business, all of the ordinary and necessary business travel expenses are deductible, just as if the business trip were within the U.S. On the other hand, if the trip also incorporates a vacation, special rules determine the deductibility of the travel expenses to and from the destination; when the other business travel expenses, such as lodging, meals, local travel and incidentals, can be deducted; and when they must be allocated. So, whether you are just visiting one of our neighboring countries or traveling to Europe or even more exotic locales, here are some travel tax pointers:

Primarily Vacation – If the travel is primarily for vacation and only a few hours are spent attending professional seminars or meeting with foreign business colleagues, none of the expenses incurred in traveling to and from the general business location are deductible. Other travel expenses must be allocated on a day-by-day basis, and only the business portion is deductible.

Primarily Business – If the trip is primarily for business and meets one of the conditions listed below, the expenses incurred in traveling to and from the business destination are deductible in full (same as for travel within the U.S.).

• The travel outside the U.S. is for a period of one week or less (seven consecutive days, excluding the departure day but including the day of return). In addition, all other ordinary and necessary travel expenses are fully deductible.
• Less than 25% of the total time outside the U.S. is spent on non-business activities. In addition, all other ordinary and necessary travel expenses are fully deductible. (If 25% of more of the total time is spent on non-business activities, a day-by-day allocation of all travel expenses between personal and business activities is necessary and only the business portion is deductible.)
• The individual incurring the travel expenses can establish that a personal vacation or holiday was not a major consideration. In addition, all other ordinary and necessary travel expenses are fully deductible.
• The taxpayer did not have “substantial control” over arranging the trip. (For self-employed taxpayers, who would generally have substantial control over the trip arrangements, this provision likely won’t apply.) In addition, all other ordinary and necessary travel expenses are fully deductible.

When determining what constitutes business and non-business time, business days include: days en route to or from the business destination by a reasonably direct route without interruption; days when actual business is transacted; weekends or standby days that fall between business days; and days when business was to have been transacted but was canceled due to unforeseen circumstances.

Non-business days are days spent on non-business activities as well as weekends, holidays and other standby days that fall at the end of the business activity, if the taxpayer remains at the business destination for personal reasons.

Foreign Conventions, Seminars or Meetings – Tax law does not permit a deduction for travel expenses to attend a convention, seminar or similar meeting held outside of the North American area unless the taxpayer establishes that:

• The meeting is directly related to the active conduct of the taxpayer’s trade or business, and
• It is “as reasonable” for the meeting to be held outside of the North American area as it is within the North American area.

The IRS defines “North American area” quite broadly and includes not just the U.S., Canada and Mexico, as you would expect, but also Bermuda, several countries in the Caribbean basin, U.S. possessions such as American Samoa and other Pacific island nations, and some Central American countries as well.

Cruise Ship Conventions – In order for a taxpayer to deduct the cost of attending a convention related to his or her trade or business on a cruise ship, the ship must be a U.S. flagship, and all the ports of call must be within the U.S. or its possessions. In addition, the maximum deduction is limited to $2,000 per attendee. Substantiation requirements include certain signed statements by both the taxpayer and an officer of the convention sponsor.

Spousal* Travel Expenses – Generally, deductions are denied for travel expenses for a spouse, dependent or employee of the taxpayer on a business trip unless:

1. The spouse is an employee of the taxpayer, and
2. The travel of the spouse, etc., is for a bona fide business purpose, and
3. The expenses would otherwise be a deductible business travel expense for the spouse.

*These rules also apply to a dependent or employee of the taxpayer.

Since a spouse, dependent or other individual who is an employee will be denied a deduction for business travel expenses in years 2018 through 2025, condition #3 can’t be met. This means that “spousal” travel expenses won’t be deductible for years 2018 through 2025.

However, the law allows a deduction for the single rate for lodging on qualified business trips, and frequently, there is no rate difference between one and two occupants. Thus, virtually the entire lodging expense for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the business-related transportation would be deductible. This would generally also apply to taxis at the destination.

As you can see, determining the tax deduction for a foreign business trip of a self-employed individual that is combined with a vacation can be complicated. If you need additional tax guidance or help planning such a trip, please give this office a call.

Here at Team Bridges, we love cutting income taxes for
you, just so you can keep a LOT more of your hard-earned
money.

And we also love helping individuals and businesses
that have run afoul of the IRS, for whatever reason. We
make no judgement of anyone that requests our help,
because, well, nobody is perfect.

Very often people end up in trouble though no fault of
their own. And occasionally, we get referred a case where
someone purposely caused trouble for a taxpayer.

We mentioned this case recently, and we are
proud as a peacock to tell you the result.

First, the details:

Our client is a business owner. He had an
ex-girlfriend, to whom he was paying child
support.

She got greedy and took him back to court for
additional child support. However, when we prepared his
current 4 years of tax returns, a different picture
emerged.

They would have resulted in a decrease in child support
if she followed through.

His ex-girlfriend went into a rage.

To get even with our client, she set fire to
the shed at his home that contained all of his tax
records.

That was bad enough. But, then she did the
unthinkable.

She made a fraudulent whistle-blower call to
the IRS, telling them that he had substantially understated
his income for 2013 through 2016. And that he had no
documentation whatsoever.

He contacted us and shared this disgusting chain of
events. When he forwarded the audit letter to us from the
IRS, it was obvious to me that this was a
whistle-blower audit.

They wanted documentation for
everything!

After disallowing all his business expenses for
all four years, they had him owing $161,000.

He had precious few records that we were able to get
from third party sources.  Nonetheless, we appealed their proposed
assessment, which required the most creative,
outside-the-box effort that we have ever made in appealing
an audit assessment.

This was truly a team effort.

We were hoping for at least a modest reduction in the
fat tax bill they had saddled him with, from his ex’s
horrific actions.

When we received the reduction notice from IRS, we were
almost afraid to open it, knowing that it was very possible
they made no reduction at all.

We couldn’t believe our eyes:

They cut his IRS bill down to $66,000! A huge
cut of more than $95,000!

There were tears of joy around our office. Okay, I
admit, I got choked up too.

When Sierra reached our client to give him the
amazing news, it was as if the weight of the world has been
lifted from his shoulder!

And there’s even more good news — we can
now appeal for an even further reduction!

We are seriously hoping to get the ultimate settlement
down to maybe $24,000 or even less. And this final amount
he can actually pay over several years.

Our entire team is basking in the joy and
satisfaction of restoring one person’s hope. And
transforming his life.

It’s at times like these that we
know we’re where we’re meant to be…

Restoring people’s lives, their finances and
most of all, their hope.

Who do you know that’s hanging on by the barest of
threads?

Chances are, you know someone that’s trying to feel
their way through a broken relationship, a substance issue
or even cancer, or a severe financial hardship.

If we can help one of your friends with a
severe (or minor) IRS problem, or just offer a word of hope
and encouragement, we’d love to help!

“When in doubt as to what you should do, err on the side of giving.” – Tony Cleaver

As often is the case, when I tell someone my profession this around time of the year, I get cornered for tax tips and advice.

Here’s what I WOULD respectfully suggest to the Scrooge of Giving: four good reasons why you should strongly consider giving money to your favorite charity, right now — regardless of the tax deduction or even the impact the money will create…

1. Your heart changes.
Studies show that when individuals spend money on gifts for friends or charitable organizations, their happiness increases — while those who spend on themselves get no such boost. Even Scrooge can agree that everyone wins.

2. You’re likely to just blow it on something dumb anyway.
As pious as you are, there’s still extra money in your budget somewhere. Create a budget for charitable donations, then take some of your extra money (each month or each year) and donate it to your favorite cause. Use your spending money to make a difference instead of spending it on Brookstone junk you’ll use just once. And if you think you don’t have enough, take that extra 2% you’ll be earning next year and put that toward a charity fund. For someone making $100,000, that’s $2,000.00!

3. Face it: If you don’t help now, you never will.
Don’t pretend that instead of giving money, you’re going to donate time. When was the last time you volunteered at a soup kitchen? Don’t let your mind fall for this trick. Send the money now or you’ll end up giving nothing.

4. Be a leader, not a follower.
This is the biggie, in my opinion, and perhaps the most important. There’s something intangible that happens in your psyche when you cut a big (or relatively big) check to someone in need, or to a charity organization. You feel more powerful — more dynamic. You signal to your own soul: “Money doesn’t rule me. I have more than enough, so much more than enough that I’m giving it away.” Then, of course, something special often happens: more money seems to find itself in your hands.

I’m not advocating a mystical pay-it-forward scheme or weird “prosperity-style” theology; I’m simply making the observation over years of being a student of how money works. And, perhaps ironically, it just seems to find itself in the hands of those who give it away.