Tax Deductions for a Board of Directors

Posted On:

Incorporating a business have some advantages in terms of tax benefits. For instance, business trips for members of a board of directors are tax-deductible expenses. Travel for business occurs when duties require your absence from the general area of your tax home for a substantially longer period than an ordinary workday.

If the travel is primarily for business but also for personal reasons, the travel expense is deductible. The transportation costs are not prorated among business and non-business portions. Retreats and meetings of the board of directors can qualify as travel that has a primary business purpose. By engaging in some business during a vacation, at least a portion of the trip is business travel expense.

When the travel is primarily for business, lodging expenses and rental car costs are deductible for business days but not for the personal days. Any day during the trip is a business day when meetings are conducted, clients are visited, suppliers are evaluated, conferences are attended, or any other activities occur with a purpose of advancing the business. To calculate the business portion of expenses for a trip that is primarily business but includes personal, divide the number of business days by total days of the trip. That is the percentage of lodging and other expenses that are tax-deductible.

Other categories of travel expense include taxi fares, public transportation fees, tips, dry cleaning and laundry charges, assessments for faxes or mobile communications, and any ordinary and necessary expenses related to your business travel. Expenses in these categories are deductible for the business percentage of a trip if the travel is primarily for business purposes. The deduction for business meals is generally limited to 50 percent of the cost. All meals during business travel are tax-deductible. There is no requirement of a business connection to the meals like is necessary when not traveling.

If the main purpose of the trip isn’t business, only expenses related to business during the trip are tax-deductible. For example, taxi fare to meet a business associate is deductible but not all the taxi fare for that day. The expense for a meal with a business client is deductible (subject to the 50 percent limitation) but not all meal expenses on the business travel days.

Business trips to tradeshows and conferences have special tax rules. There must be a business benefit associated with the event. In addition, the convention, conference, or seminar must last a minimum of six hours daily. A tax deduction is only allowed when attending a minimum of two-thirds of the program. Registration forms and receipts are required to document attendance and to confirm payment.

There is a daily limit on the deductible amount when traveling by ocean liner, cruise ship, or other form of luxury water transportation for business purposes. The limit is twice the highest federal per diem rate allowable for any US location at the time of travel. (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home for business purposes.)

Combining meetings of the board of directors with a personal vacation can result in travel that primarily involves business. In order to obtain the tax benefit, detailed records are required to support that most of the trip involved business days rather than vacation.