Tax Tips Part IV
Professional Dance Business Tax Tips
Part IV: Detailed Advice About Travel Expense Deductions
by Ma*Shuqa Mira Murjan
In Part III: Travel Expenses, I reviewed the definition and process for claiming travel expense deductions from your taxes. Now we shall examine in more detail other definitive areas of travel expenses that can be deducted under certain circumstances.
More Than One Job Location
If you work in more than one location during a given day, you can deduct the cost of transportation from one location to another. This applies whether or not you are working for the same employer at both locations or for different employers. However, you cannot deduct the cost of traveling from your home to the day’s first place of employment nor from the final place of employment back home.
Here are some examples of how these travel expenses are handled:
Scenario 1: You are employed during the day teaching in your dance studio, then go from that location to perform at a restaurant at night, but stop along the way to have a light dinner. You may deduct the cost of transportation from the teaching activities to the restaurant where you dance, but you cannot deduct the cost of dinner because you are not away overnight.
Scenario 2: You teach at a university, then drive to teach at a recreation center, and then on to another location to teach yet another class at a community college. You can deduct the cost of travel between these business locations if they are made in the same day. It would be useful to keep a contemporaneous diary of this travel. However, if you have printed scheduling that shows your regular daily and weekly activity, then it is possible to determine the deduction entitlement without a diary. Keep your advertising from your dance workshops and classes.
Travel between one’s home and principal place of business is not deductible, even if some business activity is carried out at home. But, if one’s home is the principal place of business (if your studio is located at your home, as mine is), then travel to a secondary business location is deductible. Therefore, travel from my home location to perform is a business expense since my studio is my work location where I teach and store my costuming and music. Dancers who may work “part time” performing, should be aware that if you go home from a “day job” to prepare for your performance, your travel from home is not deductible because you have not traveled from one regular job location to another, and you cannot deduct any of your transportation expenses.
Commuting to a Temporary Job Near Home
To qualify for a commuting deduction to a temporary job in the same general area as your regular job, two basic conditions must be satisfied:
1. The commuting must be to an irregular or short-term job site, defined by the IRS as “generally a matter of days or week.”
2. In addition to the temporary job, you must have a permanent “business location” where you typically work or perform services on a regular basis.
If the above two conditions are satisfied, you can deduct the cost of commuting to the temporary job. For example, when I taught a special master class for a colleague in the San Francisco Bay Area, my travel expenses were deductible since my studio is my principal place of business for dance.
Temporary Job Away From Home
If you have a temporary job away from home, then it’s easier to qualify for deducting travel expenses. Your temporary job can last up to one year instead of only days or weeks for in-town jobs as discussed in the preceding section. Also, if you live away from home, you may deduct not just transportation, but also meals, lodging, and laundry or other miscellaneous expenses. The rules in this section apply if both of the following conditions are satisfied:
1. Your temporary job must be located away from home.
2. The temporary job must qualify as being temporary in the eyes of the law.
You must show that you have some fixed home base in a different location than your temporary job. Although I resided in Koln, Germany and worked daily teaching dance and aerobics, and performing each night, my home location in Los Gatos, California, was still my “tax home,” my principal place of employment for dance because of my studio and business license. Although I worked in Germany in two different “tax years’” the duration was less than one full year. So, while working in Germany I was able to deduct my costs of commuting to several daily jobs, and the in-country travel for seminars and performances as well as some miscellaneous expenses for the repair of my luggage and well-worn dance shoes. A job is considered temporary if at the time you start, it can be foreseen to end within a fixed and reasonable short time. A period of less than one year is considered by the IRS to be a short time for this purpose. And, in addition there are other IRS rules governing exclusion of foreign income if the position lasts at least a year.
An issue that often arises is whether a job away from home is temporary or indefinite in length. A temporary job is one that is expected to last for a short period of time. An indefinite job is one whose expected duration is indeterminate or else a long period of time. Only away-from-home expenses connected with a temporary job, not an indefinite job, can qualify for deduction. Scheduled travel arrangements, your airflight ticket, and dance performance advertising would indicate the temporary nature of the job. I surmise that Sahra, a native Californian, who lives and performs in Cairo and returns to California to teach at Rakkasah during Ramadan, could not deduct her travel expenses under U. S. tax laws because now her primary place of employment and residence is in Egypt.
As may have happened for Sahra, sometimes a job starts out being temporary, but later becomes indefinite. For example, suppose you accept a position for a temporary period. At the end of this period, an unexpected permanent slot opens up and you accept this dream dance job. At that point, your job changes from being temporary to indefinite . If you are “away-from-home,” you can deduct your living expenses during the temporary period, but not thereafter.
The IRS may contend that working abroad or in a location away from home for research under a fellowship grant is not a temporary job, and therefore there can be no deduction for expenses incurred at a temporary job away from home. You can counter the objection by claiming that the expenses were incurred as an educational expense while on temporary leave or absence from one’s regular job.
Travel to Look for Employment
You can deduct expenses connected with looking for a new job, whether or not you are successful. However, you may do so only if you are looking for work in your current profession. You cannot deduct the expenses of looking for work in a new profession even if you are successful. Be aware of this if you are making a career change to exclusively become a professional dancer for a living.
If you take a trip to look for a new job in your own profession, then you can deduct all your travel expenses. If the trip combines the search for a job with sight-seeing or other personal activity, then you can deduct your travel expenses provided that the primary purpose of your trip was to look for a job. Of course, if you are considering this for tours to Egypt, any expense directly connected with sight-seeing activities is not deductible and you are probably not on tour to “look for permanent employment as a dancer.”
Travel to Professional Conventions
If you attend a convention which is directly connected with your profession, then you may deduct the cost of travel including meals and lodging if you are away from home overnight, as well as direct convention expenses such as registration fees for workshops.
Some interesting details about travel deductions to conventions: If your spouse accompanied you (and your spouse had no business purpose for being there), you may deduct what it would have cost you had you gone alone. If you stay an extra day or two in order to obtain a lower air fare, then you can deduct your travel expenses for this extra period to the extent money is saved on the overall trip. If a convention is held outside the North American area (as in the convention and dance contest held in Egypt), it must be “reasonable” for the convention to be held abroad. Definition is dependent upon the purpose of the organizing group. For example, an international association of dance artists could sponsor such a convention in Egypt, but a regional middle eastern dance association in the U.S. could not organize a tour of Egypt and bill it as a professional convention just for tax purposes.
Travel Which Combines Business With Pleasure
Travel within the U.S.: If your trip is within the U.S. and is entirely for business, your ordinary and necessary travel expenses may be deducted. If your trip is solely personal, no part of your travel expenses are deductible, even if you engaged in some business activity at your destination. So, if you just happened to be asked to perform while on vacation, then you cannot claim your trip was for business if it was not a planned business trip.
You may travel to a business destination, and extend your stay for non-business reasons, make a non-business side trip, or engage in other non-business activities. In this case, your travel expenses are deductible only if the trip was related primarily to your profession. In 1979 I traveled to Boston for a professional business meeting, then after my business was conducted in Boston, I flew with my dance friend, Al Qahira, from Boston to Tampa, Florida, to join Bert Balladine to teach and perform. This leg of my business travel was separately deductible as my dance business activity.
Regardless of whether the primary purpose of your trip was business or pleasure, an expense that is properly attributable to a business purpose, such as a registration fee at a professional convention, is deductible. Whether a trip is primarily for business or is primarily personal in nature depends on the facts and circumstances in each case. However, the length of time spent in business or personal activities is an important factor in determining the primary purpose of the trip. The key to determining the primary purpose as dance is to document your dance activities: photographed and videotaped performances, publicity and advertising, newspaper articles covering your lectures, and any pay stubs or copies of checks for payment for performances.
Travel outside the U.S.: Different rules govern travel outside the U. S. For combined business-with-pleasure travel inside the U. S., you may deduct all of your travel expenses (except those specifically connected with personal activities such as sight-seeing) as long as you can establish that the primary purpose of your travel was of a business or professional nature. However, for combined business-with-pleasure travel outside the U. S. where the primary purpose of the travel is for business purposes, you must meet one of the following conditions in order to deduct all of your travel expenses:
I. You were outside the U. S. a week or less. In counting the days, do not count the day of departure from the U. S. but do count the day of return.
2. You were reimbursed by or received a travel expense allowance from your employer (and you are not a managing executive nor related to your employer).
3. You spent less than 25 % of the total time outside the U. S. on non-business activities.
4. You had no substantial control over arranging the trip. You are not considered to have control merely because you have control over timing the trip.
5. You can establish that a personal vacation was not a major consideration.
Even if you satisfy one of the above conditions for a trip taken primarily for business, you still cannot deduct for expenses which are strictly personal in nature, such as sight-seeing expenses. Similarly, if you extend your stay just to engage in some personal activity, then your living expenses during such an extension are not deductible. However, if you spend time on personal activities during the middle of a business trip, your living expenses during such a period can still be deductible.
If you do not meet one of the five conditions listed, your expenses can be allocated between business and non-business activities. If your travel is interrupted by a substantial non-business diversion, or if you do not travel a reasonably direct route, you count as business days only the number of days you would have been outside the U. S. if you had traveled to your business destination by a reasonably direct route, using the same means of transportation.
If your principal activity during the normal working hours is in pursuit of your business, the day is counted as a business day. Any day that you are prevented from engaging in the conduct of your business as a principal activity because of circumstances beyond your control (illness, weather conditions) is also counted as a business day. Any day that your presence is required in a particular place for a specific and bona fide business purpose is counted as a business day, even though your presence may be required for only part of the day and if you spend more time in non-business activities than in business activities.
Scenario mixing personal and business travel: A true case in point: An assistant professor at a medical school in the U.S. made annual trips to Egypt to visit relatives there. A court case involved one year that Dr. Habeeb claimed that his trip qualified for a tax-deduction because it was made primarily for business purposes. The IRS court opinion describes his trip as follows:
The trip lasted 45 days and travel was by chartered flight. During his stay he delivered five lectures at the University of Alexandria and two lectures at the University of Cairo. These lectures involved subjects within the petitioner’s expertise. Dr. Habeeb was invited to give these lectures, but admitted that he had volunteered his services and received no compensation or expense reimbursement for the lectures. He also mentioned numerous discussions with students, professors and other lecturers while in Egypt for the purpose of exchanging ideas, keeping abreast, reviewing articles, and generally to avoid professional isolation, which would be experienced if one did not travel to that locale.
In spite of the fact that he had volunteered to give the lectures, received no pay or expense reimbursement from the universities he visited, and visited with his relatives and spent less than a 1/3 of his time for business purposes, the court decided that his trip was undertaken primarily for business purposes and therefore a portion of his expenses could be deducted.
In considering whether a tour to Egypt, Morocco or Turkey can be a deductible business expense, the first question to be asked is whether the trip is primarily personal in nature. In professor Habeeb’s case, the presence of family members to be visited in a country did not automatically deem the trip to be personal, because the trip was taken primarily for the business purpose of maintaining the petitioner’s reputation in the field of his specialty. I personally experienced the impact of this IRS ruling when in my IRS audit we reviewed my business-related activities for a trip to Egypt and Greece in the 1983-84 tax years. The IRS agent accepted the following activities as definition of the travel for business purposes to maintain the petitioner‘s reputation in the field of specialty:
1) The package tour was led by educators, Mona and Bill Mulhair of Monabil Imports, and the itinerary was specially planned according to the requests of the dancers traveling with them.
2) Numerous performances were made in Cairo and Athens (parties, clubs, conventions, tavernas).
3) A lecture-demonstration performance was given to a Cairo ladies club.
4) Special arrangements were made to attend a special party to review the work of an Egyptian artist.
5) Attended a special concert at Cairo University and have discussions with professors following the concert.
6) A special appointment to meet Nagwa Fouad and attend her performance.
7) Attended an Egyptian wedding to view the special dancer’s processional.
Determining whether a tour is for business or pleasure is defined by the joint efforts of you and the IRS agent during an audit. I received a panicked call from a dancer facing an IRS audit the next day, who asked if it would help to take a trunk load of costumes to her audit so that she could claim her dance expenses for a tax year which included visiting a friend in Egypt. I reviewed the ten questions that I included in the first article in this series with her. As you have guessed by now reading these articles on Professional Dance Business Tax Tips, the manner in which you conduct your dance activities defines you as a professional and a bona fide business. You cannot claim to be a professional dancer by only engaging in performance and teaching; you must dedicate yourself to establishing yourself as a viable business enterprise and be truly serious about what you offer to the dance community. Claiming business expenses for dance can only result if you commit to the accounting procedures, record keeping and true dedication to lifelong continuing education as a professional in dance.
This series of articles on taxation and dance business expenses is designed to assist U.S. citizens in managing the reporting and recordkeeping required by the I.R.S. For specific tax questions, I direct you to ask your tax attorney, tax preparer, business accountant, or your helpful I.R.S. agent.
Having completed her MBA, Ma*Shuqa Mira Murjan now divides her time between her career as a university professor of business, her work as a business consultant, and her performing, teaching and continued study of Oriental dance. She is currently pursuing a Ph.D. in Educational Administration. www.mashuqa.com