Deductible or not deductible?

Question

A big surprise! We went to a RE conference in Irvine CA (Think Realty) (I live in Oregon) and the whole thing was rather expensive. It was much like a BP conference with even some of the same experts as the (a few years ago) BP conference in Denver. I assumed it was deductible. My accountant (CPA) said the IRS is cracking down on people taking trips and writing off some of the expenses. For me it was educational.

There was a women from Ignite Funding pitching trust deeds. The project is in Utah with a 10k minimum investment so I took a flyer with her.. She also has projects out of Las Vegas where her business is located.

My accountant says one needs to buy something in CA (where conference was) or it is not deductible.

I am a small landlord in Portland, not a professional, looking for investments (small).

Thoughts?

Basit Siddiqi · Answer

@Jeff S.The answer from the CPA/accountant should not be "the IRS is cracking down on people taking trips.His answer should be this is deductible and we can include it on the return or this is not deductible because XXX and we can't take it on the return. If it is not currently deductible, he should advise how you can make it deductible going forward.There is no statistic that he knows of that shows the IRS is cracking down on any specific expense/deduction. The IRS would not make that information public.If you are not in the business yet, the expense may not be currently deductible. However, you may want to see if the item can be a start-up cost or added to basis of a future deal you get into.

Gita Faust · Answer

@Michael Plaks

You made me laugh!

"you don't have to meet the 250 hours safe harbor (for which reading BP does NOT count)."

Michael Plaks · Answer

@Jeff S.

I agree with @Basit Siddiqi: the IRS supposed crackdown is not very relevant. It's like saying - there is a speed trap there, so do not speed on that stretch. Speeding in general is either OK or not OK, depending on your take on it, but not depending on the cop with the radar.

I would agree with your accountant if that trip was to look for future properties. Then you cannot deduct such trip until you have properties there.

Since it was for a seminar, then it's in that infamous grey area. The question would be: is that reasonable to spend $10k (or whatever it cost) for the trip and the seminar, considering your business? If you have one rental generating $0 cash flow - then probably not. If you have a sizable portfolio - probably yes. If you're in between - well, this is what you pay your accountant for, because "it depends."

Ben Zimmerman · Answer

Tax code often refers to what was the persons intent when defining what is deductible and what is not.  If this conference was the primary reason that you went to CA, then the trip should be deductible.  However costly out of state trips for smaller investors is more often than not really just a vacation under the guise of a business trip.  Several items that can raise red flags is if you do not attend other similar conferences that are closer and cheaper.  After all, why should the IRS believe a run of the mill conference conducted on a cruise ship is a legitimate business expense if the person doesn't attend similar conferences held in that persons home town?  Secondly, do you invest in out of state properties?  If you only own locally, why would the IRS believe that a costly trip to hear about out of state investing was a legitimate expense when out of state investing isn't normal for you, and you didn't buy anything?  Third, did you secure your conference tickets before, or after you bought your plane tickets?  How long did you stay? -For example a week long trip sounds fishy if the conference was only one day.  The list goes on but you get the idea.

It sounds like your CPA doesn't believe that your trip centered around your business activities, and was really just a vacation.  Even if the trip was a vacation, you could still deduct expenses that were directly business related such as if you had to purchase tickets to this conference.  (I'm not a CPA, no advice given)

To Quote directly from the IRS webpage:

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If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, won’t change what is really a vacation into a business trip.

Sam Shueh · Answer

I am not a CPA or tax lawyer. I know tax CPA signature often states he validated your deductions are legit. If you have been a realtor or investor/retiree and have proven track of transactions I think partial deduction of a trip or seminar in order to secure a specific property is easier.  As others suggested if you feel you got a case then you can try another tax filer. Indeed your CPA could give you a tax code and explain why he felt differently.

Eamonn McElroy · Answer

@Jeff S.

"He says the conference is not deductible because I did not buy any rentals as a result"

Ask him to provide authoritative guidance (IRC, Treasury Regulation, Rev Proc, Revenue Ruling, Case Law) that reinforces that position.

Eamonn McElroy · Answer

@Jeff S.

"Thinking maybe he considers a business one where you pay SE tax which I would not want to do."

What constitutes a trade or business under Sec 162 case law is not limited to what constitutes a trade or business subject to SE taxes under Sec 1402.

Rentals are only subject to SE taxes in very limited circumstances.  A number of rentals that rise to the level of a trade or business doesn't automatically make the rental income subject to SE taxes...

I agree with the other tax pros on this thread that your CPA doesn't seem to be giving good answers relating to trade or business case law, and that you may want to consider filing an extension and interviewing a few new CPAs/EAs in May or June.

Jeff S. · Answer

@Michael Plaks "He" is my Portland accountant. He says the conference is not deductible because I did not buy any rentals as a result and that I don't have a business that justifies the trip. If I had bought a rental property like something in Memphis then a portion could have been written off.

@Sam Shueh my occupation is "retired".

Sam Shueh · Answer

What profession did you claim on tax filing?

Michael Plaks · Answer

Who is "he"? Are you talking about me or about your accountant? Who denied the deduction?

You can always file an extension and have a second opinion.

Education is always good but is not always an allowed business expense.

And being in business for the purposes of taking deductions has nothing to do with SE tax. Most landlords do qualify for the "trade or business" IRS classification.

Maybe you need a better accountant.

Deductible or not deductible?

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