Industry events 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, green industry businesses can deduct all non-extravagant “ordinary and necessary expenses” incurred 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 temporarily suspended by the December 2017 Tax Cuts and Jobs Act (TCJA) — the same bill that put a bigger crimp in the meals and entertainment deductions.
For a garden center to take the deduction, it must have the convention expenses on its books. If the owner/employee, or any attendee, pays an expense personally, they must submit an expense report detailing the expense, and the business must reimburse that expense to get the deduction.
Reform meals and entertainment
The TCJA eliminated, at least until 2026, the deductibility of some itemized deductions of individuals. Targeted were miscellaneous itemized deductions subject to the former 2 percent floor. That means unreimbursed employee business expenses (including expenses for travel, lodging, meals, entertainment, continuing education and others) can no longer be claimed.
Fortunately, many of these deductions remain available for use by garden centers, including sole proprietorships. Although the TCJA isn’t too clear on how the new rules apply to business meals, under the new law, entertainment is no longer deductible.
However, no change has been made to the 50 percent deduction for business meals or the 100 percent deduction allowed for expenses incurred for recreational, social or similar activities that are primarily for the benefit of employees. Until the IRS issues some much-needed guidance, the specific tax treatment for many of these meals remains open to interpretation.
Travel, meals and entertainment
Although the TCJA appears to have wiped out many show-related expense deductions, many remain, at least for a garden center. If, for example, business is conducted during a meal, a deduction may be available. Of course, a deduction of 50 percent of the cost of meals incurred while traveling away from home on business is still possible.
While the tax laws limit the business meal deduction to only 50 percent of the expense, not too surprisingly, those rules 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 greenhouse business. The 50 percent rule applies only to the business owner.
If, on the other hand, a meal immediately precedes or follows a substantial business meeting, 50 percent of the cost can be deducted — so long as it was not “lavish or extravagant.”
Of course, if the garden center provides meals in a hospitality suite at a convention with the clear intent of generating business, the cost is usually deductible. Other meals, outside, that were paid for purely for goodwill purposes, may not qualify as “directly-related” to the business. 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. For instance, client or customer business meals are deductible only if they are not lavish or extravagant and only if the taxpayer, or a representative, is present. Because entertainment expenditures are no longer deductible, it is necessary to conduct business with the client or customer for the meal to be deductible.
Mixing business and 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 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, round-trip travel is fully deductible if more days are spent on business than on pleasure. Under the tax rules, former and present, 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 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 pick-up is up 3.5 cents from 2018 to 58 cents per mile for business travel in 2019.
Friends, family and 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, the deduction should be limited to the cost of a single room, an amount readily available from the hotel. Of course, if a bona fide business purpose exists for the individual's presence, and can be proven, a tax deduction might result. Incidental services, such as keeping notes or assisting in entertaining customers, are not enough to make the expenses deductible. Generally, 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 garden center clearing the hurdles created by our lawmakers, with the proof to support it, may deduct the entire cost of sending attendees to a convention, show or conference (subject to the usual 50 percent limit on meals and entertainment) and minus any attendees’ personal expenses. However, the rules are tighter if the event is held outside the North American area or on a cruise ship.
Foreign conventions: To deduct the expense of attending a trade show or convention held outside North America, the business must show that the event is directly related to the active conduct of the garden center, and it is as reasonable for the event to be held outside the North American area as it is to hold it within the North American area.
Cruise ship conventions: 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 of its ports of call in the U.S. or U.S. possessions. Finally, the tax law limits cruise ship convention deductions to only $2,000 per year. And don’t forget that you need to submit a signed, written statement stating the total days spent on the ship and how many hours were devoted to business each day. Another statement, this one from an officer of the sponsoring group or organization confirming both the scheduled activities and the attendance of the participant, is also required.
Those dreaded receipts
While receipts for expenses of $75 or less are not required, 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.
When attending a show, meeting or conference, a copy of all charges, as well as a copy of the convention schedule/agenda can help prove its relevance to the garden center. Also keep in mind that while there is no overall dollar limit on the amount that can be deducted for the expenses incurred attending a trade show, costs that are “lavish and extravagant” cannot be deducted.
To recap, as with the travel and lodging expenses of other business trips, the primary reason for attending a trade show, convention, meeting or seminar must be business-related 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. In general, all “ordinary and necessary expenses” for attending business meetings and conferences can be deducted when the expense is directly related to the garden center. With certain limitations, allowable expenses include travel, lodging, meals and associated out-of-pocket costs — so long as they are not extravagant or for personal purposes.
Additional guidance is available from the IRS in "Publication 463: Travel, Entertainment, Gift and Car Expenses." A copy of this publication is available at irs.gov/formspubs. The principal or manager of any garden center who needs help with this most confusing area of U.S. tax rules might seek professional advice.