Lawyers do not sit around. They always have somewhere to go, sometimes for an extended period. A lawyer with a four-day trial in another county will probably stay at a local hotel rather than drive back and forth. And due to the tough job market, attorneys are moving out of state to take temporary or indefinite positions.
With proper planning, travel expenses can be written off as a deductible business expense. Travel expenses are deductible as a business expense if they meet the following requirements:
- They are incurred while away from home.
- The expenses are reasonable, ordinary, and necessary.
- They are explicitly connected to a business purpose.
Expenses Must Be Incurred While “Away from Home”
For most lawyers, their “home” is the city or general area of their regular place of business or home office. To qualify for the travel expense deduction, they have to be away from home long enough to require overnight sleep or a similar resting period.
Generally, if you leave your home for a few days, or even a week or two for a business purpose, then the travel expenses are deductible. But this can be a problem if you leave your home for several months doing contract work. The rule is that you can deduct travel expenses connected with a temporary work assignment away from home. However, you cannot deduct travel expenses paid in connection with an indefinite work assignment.
What’s the difference between a temporary and an indefinite assignment? A work assignment that lasts more than one year is considered indefinite. If you expect a job will last less than one year, it is temporary unless the facts and circumstances suggest otherwise.
The Expenses Must Be Ordinary, Necessary, and Reasonable
My previous piece outlined the conceptual rules on whether an expense is ordinary, necessary and reasonable.
Ordinary and necessary travel expenses include but are not limited to:
- Air, rail, car rental, taxi, and bus fares
- Phone, internet and fax expenses
- For meals, you have two options: You can deduct 50% of the actual cost spent on meals taken while traveling. If you hate recordkeeping and do not spend too much on food, you can use the daily standard meal allowance instead. Click here to determine the daily standard meal allowance for the city you plan to visit.
Whether an expense is reasonable depends on the facts and circumstances but it shouldn’t be overly lavish. You will have to show a very compelling business reason for purchasing one of these plane tickets to attend the next state bar meeting.
The Expenses Must be Connected to a Business Purpose
For a travel expense to be deductible, it must be directly connected to the taxpayer’s trade or business, as well as necessary and appropriate to the development and pursuit of the trade or business.
For lawyers, the rule is usually straightforward. Travel costs to investigate cases, attend a deposition, trial, a court hearing, mediation, and even to attend your own disbarment proceedings are deductible because they are directly connected to the practice of law.
But there are times where the lawyer and the IRS will disagree whether travel expenses are connected to his or her line of work. In the matter of J.R. Dyer, the taxpayer was a lawyer in St. Louis who traveled to Washington D.C. to testify before the Joint Congressional Committee on Atomic Energy. The U.S. Tax Court found that his appearance and testimony had no direct connection with his business of being an attorney.
A lot of practicing attorneys ask me if travel expenses are deductible where they are meeting with a client, a potential client, another attorney, or a referral source. I tell them that when the IRS audits travel expenses, they look at the primary purpose of the trip, the amount of time spent on business related activities, and any time spent doing personal activities.
Travel expenses connected to developing business are deductible. But the IRS will scrutinize them carefully to ensure that the trip was not primarily a personal vacation. The revenue agent will ask detailed questions about what you and your clients discussed, where you went, and why it was necessary to incur travel expenses. The revenue agent may also interrogate your client. From my experience, third parties are understandably reluctant to get involved in an IRS audit especially if they are self-employed.
Special Rules on Conferences and Conventions
The same three rules above apply when deducting travel expenses in connection with attending a conference or convention (C&C). But In determining whether the costs were connected with a business purpose, the IRS also looks at the following additional factors to determine whether there was a business purpose:
- The amount of time spent on activities related to trade or business versus the time spent on personal activities.
- The location of the convention
- The agenda of the convention you are attending.
I will use my attendance at the ABA TECHSHOW in Chicago to show how these factors are applied.
Primary Purposes of Traveling
I went to the ABA TECHSHOW for three reasons, all connected to my business as a tax attorney. First, to attend the seminars, with a particular interest in those discussing the functionality of computer software and mobile apps. Second, to check out the latest practice management software and other helpful tools. Finally, it was an opportunity to meet some members of the Lawyerist team who were coming from various parts of the country.1
The IRS is wary of C&Cs held in luxury hotels, country clubs, and resorts. The ABA TECHSHOW, held at the Hilton Chicago, is one of the nicer and more spacious hotels in town. But with hundreds of attorneys, support staff, exhibitors and guests attending, a large space was necessary.
Travel expenses attributable to attending a C&C are deductible if the agenda or program schedule is connected to a lawyer’s business. If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Since the ABA TECHSHOW featured seminars and software specifically for lawyers, there is a sufficient connection to establish a business purpose for attending.
While this rule seems straightforward, the IRS has denied a lawyer’s travel expenses to a C&C where there was little or no connection to a lawyer’s business. In Reed v. Commissioner, a lawyer practicing locally in Pittsburgh attended a meeting of the International Law Association in Dubrovnik, Yugoslavia as an appointed delegate of its American branch. The taxpayer did not practice international law nor did he solicit business at the conference. The tax court disallowed the travel expenses because it found that attending the conference did not have a reasonable connection to his law practice. For similar reasons, a Chicago lawyer’s travel expenses to Israel to attend a an Israeli lawyers’ convention were held nondeductible.
Following these rules will ensure that your future business-related travel expenses will be deductible and hold up to IRS scrutiny.
Featured image: “Deck chair with dollars on the sandy beach.” from Shutterstock.
Originally published May 13, 2015. Republished July 1, 2016.
An astute (and grumpy) IRS revenue agent may argue that I was attending the conference as a writer for Lawyerist and not as a self-employed attorney trying to improve or expand business. If that is the case, then my expenses can only be deductible to the extent of my Lawyerist income. Any excess expense is considered a non-deductible hobby loss unless I can prove that I am a paid, professional writer. ↩