By Daniel J. Schulte
MDA Legal Counsel
Published in the June 2007 issue of the Journal
Question: My dentist-husband owns his own dental practice. It is set up as a professional corporation and I am an employee of the corporation. He attends several out-of-town conferences throughout the year and I accompany him. Must I also register for the conference and attend sessions in order for the PC to deduct the total cost of these conferences?
Answer: There are several issues here, and I will address each one separately. The main concept to familiarize yourself with is that under our tax code, expenses must be "ordinary and necessary" to be deductible by any business or individual.
An expense is considered "ordinary" if it is usual in the taxpayer’s business. The "necessary" component of the equation is not as strict as one might believe at first glance. Normally, when you think of something being necessary or a necessity, at least in the business context, it means that your business simply cannot function without it. However, as used in the tax code to determine the deductibility of business expenses, necessary expenses need not be essential, but rather beneficial in developing and maintaining the taxpayer’s trade or business.
The expense must also bear a connection with the trade or business carried on by the taxpayer. Obviously, attending an engineering seminar would not be connected to the business of dentistry. The cost of attending conferences focusing on the practice of dentistry would certainly be considered ordinary and necessary. Attending the conferences allows dental professionals to keep current with advances in the field of dentistry in order to comply with the ever-changing standards of care.
In order to determine the PC’s deductibility of the conference expenses for you, we need to analyze what function you serve as an employee. For example, if you are also a dentist, a dental assistant or a hygienist, then attending the dental seminars would be considered ordinary and necessary business expenses and therefore deductible. However, if you are the office manager or receptionist, it would be hard to argue that attending the technical dental seminars are necessary for the business, unless the conferences had courses addressing to those subject areas related to your job duties. If the conferences you are attending bear a connection with your functions as an employee, then the PC should be able to deduct those expenses.
The next issue to address is the deductibility of the expenses incurred while traveling to and from the conference, as opposed to the cost of the actual conferences. The costs of business travel, which include meals, lodging, and airfare, among other things, can qualify as deductible expenses if certain requirements are met.
It is important to note that the ordinary and necessary requirement noted above also applies to business travel expenses. The travel must be away from a taxpayer’s "tax home" or principal place of business. In order to deduct meals (subject to certain percentage limitations not discussed here) and lodging expenses, an overnight trip is required. Many professional conferences are held at venues that are out of the area or state where an individual’s practice is located and are held for a period of several days, so these requirements are not difficult to fulfill. Transportation costs are deducible only if the trip is primarily related to the taxpayer’s trade or business. Simply put, the trip cannot be mainly for pleasure, and if it is, only those expenses related to the taxpayer’s business are deductible.
There are also additional rules for foreign travel and conventions held on cruise ships that are beyond the scope of this article.