2-16-07
Business or Personal?
Some people work at jobs where they seldom, if ever, travel out of town on business.
Some people work at regular, full-time jobs where their employer pays all the out-of-town travel expense.
“But some people ain’t me,” you hum, wishing you could remember the rest of Sondheim’s lyrics.
Most people in the arts are essentially freelancers, at least to a degree. You often have to pay your own business travel expenses, and you have considerable control over where and when you travel for business.
Let’s be honest with ourselves here. Sure, you might go to Minneapolis in February for a really important audition. A really, really, really important audition. But you would gladly, even giddily, go to Los Angeles for pilot season when Chicago’s temperatures fall below zero.
This leads to the question: What makes a trip a business trip? Where is the line between work and thawing one’s toes?
There is no actual line: only a smudgy transition zone bounded by facts and judgment.
Why Did I Do It? What Did It Get Me?
Let’s look at why it matters. The Internal Revenue Service is not trying to be a spoilsport, nor are they envious that your fabulous career takes you to glamorous spots around the world. (OK, maybe some of the employees are envious, but not the IRS itself.) Rather, they are trying to address a basic rule of income taxes: business expenses are deductible, but personal expenses are not.
Unless you suffer from agoraphobia, any trip has some element of pleasure in it: maybe a little, maybe a lot. Income tax rules recognize this. Travel expense is deductible if the primary purpose of the trip is business. “Primary,” the rules say, not “sole” or “exclusive.”
Unfortunately, “primary purpose” is both vague and subjective. The tax regulations say it is a question of fact, but it really is a question of intent: Why did you take the trip? The IRS has to infer your intent based on your actions, much as an audience must infer your character’s motivation. They tell us that how much time you spend on business compared to personal activities is “an important consideration” but that is not exactly definitive. How much weight should we give it, and how do we measure it? By days? By hours? Measuring by days suggests that dropping off an unsolicited headshot at the Tropical Paradise Shakespeare Company would qualify as a day otherwise spent at the beach.
Measuring by hours has conceptual problems, too. You get maybe five minutes of actual time at even the most important audition, or not more than 15 to pitch a film idea to a studio. If they are important enough, it makes perfect sense to fly out a day or two earlier so as to be well-rested and well-prepared.
Another logical approach that the courts have taken, and that I use regularly, is the “but for” idea. If you can truthfully say, “But for that business event, I would not have taken the trip,” then that trip’s primary purpose is business.
Do Something Special, Anything Special
Remember that what the IRS and the courts are trying to identify are disguised vacations. Where you go matters. Do you have family there? Is it where you went to college? Is it someplace people would actually choose to go in that season, e.g. San Francisco in May or Pittsburgh in February?
Just be honest with yourself. A five-day trip to New York where you spend every evening at the theatre is wonderful, but that alone does not make it a business trip. That same trip with several auditions, including replacement or tour casting for some of the shows seen, should meet the “primary purpose” test.
Let Me Entertain You
Sometimes you can clarify matters by treating a block of time spent away from home as several trips rather than one big one. As an actor, you might be engaged for the summer at the Middle-of-Nowhere Dinner Theatre and Tchotchke Emporium. You are clearly there on business when you’re working, and when you stay there on your days off. But when you use the off time to flee to the nearest big city, or to visit your college roommate, that sub-trip is not part of the business trip.
Conversely, you might be a singer visiting your family in Marble Falls, Texas. Knowing you would already be nearby, your agent got you a performing gig in Austin at your usual fee. The time with your family is not a business trip, even if its purpose is to avoid being disinherited. The sub-trip to Austin, though, is primarily for business even though you would not have flown to Texas just for the one performance.
Have An Eggroll, Mr. Goldstone
A common mistake I see is people applying the travel rules to expenses that are not directly travel-related. Business expenses are deductible because of what they are, not where you incur them, even if that is while you are on vacation. A book on scenic design is a business expense because of its subject. If I take a client out to dinner while we discuss his company or his taxes, that meal is deductible as business entertainment whether it happens in Chicago, Amsterdam or Los Angeles.
Now, I’m off to Los Angeles, where I’ll do exactly that. Oh, yeah, and thaw my toes.
Free Offer
If you would like a copy of my free “Checklist of Potentially Deductible Items” for those in the arts, just write, call or e-mail my office. We’ll be pleased to send you one.
Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmermel.com.
Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He has also been known to produce theatre.