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Enjoy the Tax Fruits of a Business Convention

A flyer comes across your desk advertising a winter business convention in a tropical paradise. It is just too good a deal to pass up: The convention will give you a chance to brush up on new developments in your field while you relax in the sun. Besides, there are some significant tax benefits to the trip.

If you meet certain requirements under the tax law, you can deduct the cost of the convention as a business expense.

Background: The basic rules for business conventions are the same as the rules for regular business trips. In other words, you can deduct the "ordinary and necessary expenses" incurred while traveling away from home. Of course, the primary purpose of the trip must be related to your business operation.

As long as the convention takes place in the North American area, you may deduct 100% of your travel expenses and 50% of your business-related meals and entertainment.

Note: If you are footing the bill yourself, these expenses are treated as miscellaneous itemized deductions subject to the usual 2%-of-AGI (adjusted gross income) floor.

However, if the convention is being held outside the North American area, there is another tax hurdle to clear: You must show that it is reasonable for the convention to be held outside the North American area. If you do not pass this reasonableness test, you cannot claim any deductions for the convention.

What places are included in the North American area? The list may be longer than you might think. Currently, it includes American Samoa, Antigua and Barbuda, Baker Island, Barbados, Bermuda, Canada, Costa Rica, Dominica, Dominican Republic, Grenada, Guam, Guyana, Honduras, Howland Island, Jamaica, Jarvis Island, Johnston Island, Kingman Reef, the Marshall Islands, Mexico, Micronesia, the Midway Islands, the Northern Mariana Islands, Palau, Palmyra, Puerto Rico, Saint Lucia, Trinidad and Tobago, the United States, the U.S. Virgin Islands and Wake Island. 

How do you pass the reasonableness test if you go outside the North American area? Traditionally, three factors are used for this determination. You must be able to show the following:

*The purpose of the convention and the activities taking place;

*The purpose and activities of the sponsoring organization or groups;

*A list of the residences of the active members of the sponsoring organization and the places at which other meetings of the sponsoring organizations or groups have been or will be held.

As a last resort, you may be able to present other relevant factors that can prove that it is as reasonable for the convention to be held outside the North American area as within it.

Whether you attend a convention inside or outside of the North American area, you must meet strict substantiation requirements. For instance, you should keep a record of the sessions that you attend. In addition, hold onto the brochures and any other documents that detail the convention activities.

Finally, remember that the primary purpose of a convention must be business-related. That is not to say you cannot enjoy yourself while you are at the convention or indulge in some sightseeing or golf. But the convention trip cannot be a vacation in disguise.

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