You might think, Heck, if its a business convention, it has to be tax deductible.
But you could attend a true business convention and find that the costs are not deductible.
We know you dont want to lose your tax deductions. Thats why we are publishing this article. It explains how you can qualify your convention and seminar expenses for deduction.
Three Types
Tax law puts all conventions, seminars, and similar meetings into one of the following three categories:
In this article, we discuss what it takes to make that convention, seminar, or similar meeting tax deductible. Once you qualify for the meeting deduction, you can then qualify to deduct your travel costs of getting to and from that meeting location.
When you attend a business convention, seminar, or similar meeting, you deduct three types of costs, using three sets of tax rules:
Whether you operate your business as an individual or as a corporation, the rules for deducting the convention travel and expenses are the samewith one basic exception.
Corporations
The rules for deducting all the expenses of getting to, staying at, and attending the convention apply to the individual. As a proprietorship, you simply deduct the expenses.
But for the corporation to get the deduction, the corporation has to have the convention expenses on its corporate books. If the owner-employee pays an expense personally, he or she has to submit an expense report detailing the expense, and the corporation has to reimburse that expense for the corporation to get the deduction.
When the corporation pays the convention expenses directlysay, by check or with a corporate credit cardthe owner-employee has to document the expenses for the corporate books.
The end result is that whether youre a corporation or a proprietorship, there is no difference in the documentation neededbut the corporation has the added burden of extracting the documentation from the owner-employee, reimbursing the employee, and ensuring that it captures the proper documentation on the corporate books.
North American Conventions
The basic rule that governs the deduction for a North American convention is grounded in this sentence: You may not deduct a foreign convention unless it is as reasonable for the meeting to be held outside the North American area as within the North American area.2 So the basic rule for the North American area is reasonableness.
Lets start with the good news. Under the North American area concept, the reasonableness standard applies the same rules to the New York or the San Francisco convention that it applies to the Jamaica, Guam, or Panama convention.
So, heres a question for you: What makes the tax deduction of a seminar in San Francisco or Panama reasonable?
Answer: Your convention, seminar, or similar meeting meets the reasonableness standard and becomes tax deductible if your attendance benefits your business. Thats it.
The definition of the North American areafor purposes of deducting conventions, seminars, and similar meetingscomes from a variety of deals that our government makes with other governments, including with respect to such things as money laundering, bank secrecy, and tax havens. Heres the current list of what makes up the North American area for purposes of deducting conventions, seminars, and similar meetings:
The North American area also includes U.S. islands, cays, and reefs that are territories of the United States and not part of the 50 states or the District of Columbia.5
Example. You live in Chicago. Theres a one-day computer seminar that would benefit your business, and its being held on the same day in both St. Louis, Missouri, and San Jose, Costa Rica. Under the North American area concept, you may choose either the Missouri or the Costa Rica location.
Tax insight. If you go to the Costa Rica seminar, you deduct your travel to and from Costa Rica under the favorable foreign travel rules, as explained in the article How to Deduct the Transportation Component of Your Business Travel.
Foreign Conventions
To deduct a convention, seminar, or similar meeting outside the North American area (a foreign event), you must establish that
To determine if it is reasonable to hold the meeting outside the North American area (i.e., in a foreign area), the IRS looks at the following factors:
Example. A U.S. medical organization with only U.S. members holds its convention in Paris, France. Members that attend this convention do not qualify for a tax deduction.
Planning tip. On the other hand, the heart surgeon who attends an international heart surgeon convention in Paris along with surgeons from all over the world to learn new treatments obviously gains new medical knowledge that directly benefits his U.S. practice. In this case, the surgeon properly deducts the convention in Paris.
Cruise Ship Conventions
Beware! You have a very small chance of qualifying for a tax deduction for a cruise ship convention, seminar, or similar meeting.
Your tax-deduction killer is that the cruise ship must be a U.S.-registered ship. There is only one ocean-worthy ship in this category, and its operated by the Norwegian Cruise Line in Hawaii under a special exemption from U.S. maritime law.
What does this mean to you? Before you sign up for a cruise ship convention, seminar, or meeting, check the registry of the ship. If its not a U.S.-registered ship, your costs are not deductible.
Planning tip. Are you involved in planning educational events? Are you looking for a unique and tax-deductible venue for your next seminar or convention? Consider hosting it on a U.S.-flagged, mostly coastal-style cruise ship or riverboat. Wikipedia maintains a helpful list of these vessels, offering creative and compliant options for business-related events on the water.
Assuming you find a registered U.S.-flagged ship or riverboat, your second hurdle is that the ship must make all of its ports of call in the U.S. or in U.S. possessions. For this purpose, your ship can make ports of call in:
- U.S. Virgin Islands
- Puerto Rico
- Guam
- American Samoa
- Northern Mariana Islands
Finally, to make the U.S. cruise ship convention or seminar more difficult, the law limits your cruise ship convention deductions to $2,000 a year. This includes:
- Convention registration fees
- The cruise fare itself
- Meals provided on the ship
- Any other expenses associated with attending the convention on the cruise ship
Your travel to and from the port of call where the cruise begins and ends is not subject to the $2,000-a-year limit.
To ensure you actually attended a business convention on this cruise, lawmakers instructed the IRS to require that you attach to your tax return a written statement signed by you that includes information about the following:
- Your total days on the cruise ship
- The hours each day devoted to scheduled business activities
- The program of scheduled activities
Of course, lawmakers dont think that the IRS should believe your statement alone. In addition to your statement, you need to attach to your tax return a written statement signed by an officer of the sponsoring organization or group that includes the following:
The daily schedule of business activities
Your hours of attendance at the scheduled business activities
At first glance, all this appears difficult, but for a well-organized event, obtaining this compliance paperwork is a minor detail.
Takeaways
Not all conventions and seminars are deductibleyou must meet specific IRS criteria.
Three categories apply:
Deductible costs include the event itself, travel, and daily expensesbut only if the event qualifies.
If you operate your business as a corporation, you need to submit an expense report to the corporation for reimbursement (or if the corporation pays directly, you need to document the expenses).
Key rules. For the North American convention or seminar, your attendance must benefit your business for the deduction to be allowed. For the foreign convention or seminar, the event must be directly related to your business.
