By Gary A. Hensley
In Part 1, I reviewed the requirements to nail down the “entirely for business” foreign travel expense deduction. In Part 2, I will cover the “primarily for business” foreign travel expense deduction, foreign conventions, and cruise ships.
Primarily for Business
If you travel outside the United States primarily for business but spend some of your time on other activities and you do not meet any of the four exceptions listed in Part 1 (to qualify for “entirely on business”), you generally cannot deduct all of your travel expenses. You can only deduct the business portion of your cost of getting to and from your destination. You must allocate the costs between your business and other activities to determine your deductible amount. You must allocate your travel time on a day-to-day basis between business days and nonbusiness days. The days you depart from and return to the United States are both counted as days outside the United States.
To figure the deductible amount of your round trip travel expenses, use the following fraction: the numerator is the total number of business days outside the United States and the denominator is the total number of business and nonbusiness days of travel.
Your business days include:
- any day you spend traveling to or from a business destination;
- any day your presence is required at a particular place for a specific business purpose;
- any day that your principal activity during working hours is the pursuit of your trade or business;
- any day you are prevented from working because of circumstances beyond your control; and
- weekends, holidays, and other necessary standby days if they fall between business days.
Example: Your tax home is New York City. You travel to London, where you have a business appointment on Friday. You have another appointment on the following Monday. Because your presence was required on both Friday and Monday, they are business days. Because the weekend is between business days, Saturday and Sunday are counted as business days. This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity.
Conventions Held Outside the North American Area
You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:
- The meeting is directly related to your trade or business, and
- It is as reasonable to hold the meeting outside the North American area as in it.
If the meeting meets these requirements, you must also satisfy the rules for deducting expenses for business trips in general, covered in Part 1 (“entirely for business”) or above under “Primarily for Business.”
The following factors are taken into account to determine if it was “reasonable” to hold the meeting outside the North American area:
- The purpose of the meeting and the activities taking place at the meeting.
- The purposes and activities of the sponsoring organizations or groups.
- The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held.
- Other relevant factors you may present.
Cruise Ships – $2,000 annual limit
You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.
You can deduct these expenses only if all of the following requirements are met:
- The convention, seminar or meeting is directly related to your trade or business.
- The cruise ship is a vessel registered in the United States.
- All of the cruise ship’s ports of call are in the United States or in possessions of the United States.
- You attach to your return a written statement signed by you that includes information about:
- The total days of the trip (not including the days of transportation to and from the cruise ship port),
- The number of hours each day that you devoted to scheduled business activities, and
- A program of the scheduled business activities of the meeting.
5. You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:
- A schedule of the business activities of each day of the meeting, and
- The number of hours you attended the scheduled business activities.
The cruise ship deduction is limited and requires signficant documentation attached to your return to substantiate it. Another byproduct; these attachments may preclude e-filing your return.