After a few weeks diligently absorbing the dark, awful post-election news, I’m ready to turn my attention to fun, sun, and travel deductions for the Miami art fairs.
To review the basics, if you’re a professional artist with a profit motive, you’re reporting your income each year on a Schedule C (as part of your 1040 form), and the beauty in that is that it entitles you to list your income and your expenses. So as a self-employed person, you are paying taxes on the difference between those numbers (aka your “profit,” which is income – expenses), and not on the gross income you receive.
Travel expenses incurred in your arts business are one of the great deductions that you are allowed. A note of caution before you go expensing a bunch of luxury accommodations though: by law, your business expenses must be “ordinary and necessary” to qualify. This means that if the industry standard is a Motel 6, and you book the Ritz-Carlton, you may deduct only the Motel 6 amount. Further, travel expenses are a tempting area for tax abuse (along with meals and entertainment and home studios). If yours are out of proportion with the size of your business, or compared to your peers, you have an excellent chance of being audited.
Warnings aside, travel deductions are a great benefit, and here is how to make the most of them, in time for the Miami art fairs.
The tax rules for business flights break down into two categories: foreign and domestic. So for Miami, let’s focus on the domestic flight rules. If the primary purpose of your trip is business, then the entire cost of airfare can be deducted as a business expense, even if elements of pleasure are included in the trip. Note that if you receive a free plane ticket – whether your gallery flew you in, or you used your own frequent flyer miles, your cost is zero, and so your deduction is zero. Because Miami in December has the look of a pleasure trip, document the business intent thoroughly.* Send emails arranging meetings beforehand, send follow-up emails after, and save all of the receipts and brochures from the art fairs you attend.
Your lodging expenses on a business trip are fully deductible. Complications arise if your trip includes any time spent for personal pleasure. In this case, your lodging costs must be allocated according to business days vs. pleasure days, and you can only expense the business days. For example, if you book a five day trip to Miami for the art fairs, and you spend your second day there perfecting your tan on the beach, and the rest of the time diligently making introductions to new gallery directors and meeting with collectors, then you may deduct your hotel expense for 4 days (the beginning and end days are deductible because they are travel days, and the third and fourth days you were working). Don’t confuse lodging rules with airfare rules – in this scenario, you may deduct the full airfare, but only ⅘ of the lodging expense.
A note on spouses
Before we leave the topic of lodging and airfare, I want to touch on spouse expenses. There used to be rules that allowed you to deduct some of your spouses’ travel. Those are gone now. If you want to deduct the cost of your spouses’ trip (and this applies equally to relatives and friends) they must be able to deduct the expenses on their own merit, and they must have a bona fide business reason for accompanying you. Generally, this means you must go all in – hire them as your employee and pay payroll tax on their earnings. Or, draw up a legal partnership agreement and make the business partnership official. Short of those measures, calling your spouses’ airfare or additional hotel costs a business expense looks very fishy, and is almost never allowed.
The cost of your rental car is fully deductible, minus any personal usage. So the day at the beach can’t be counted (you can use the ⅘ allocation I mentioned above). If you drive to the fairs, then your mileage for that trip is deductible. Generally, when you use your own car, you can use one of two methods to track your business usage.
- You can track and deduct the actual expenses you incur – meaning, you save your receipts for gas, insurance, tolls, repairs, new tires, etc. and then allocate a percentage of your total usage to business, or
- The “mileage” method, which allows you to use the government-set yearly mileage rate ($.54/mile for 2016). Instead, you track your total number of business miles traveled (you must keep a log with the date, mileage, business reason and destination), and also report your yearly total mileage (I recommend setting an alert on your calendar every January 1 to mark your beginning odometer reading). This method almost always gets you a bigger tax deduction, and doesn’t require you to track receipts.
Your meals while traveling away from home on business are deductible. The IRS includes the tip and tax as part of this deductible cost. Meals of any variety are only 50% deductible, so you can only expense half. There are two methods, similar to the mileage rules:
- Actual cost: you keep receipts for each meal, and deduct 50% of the actual cost. Fun fact: your Piña colada is a perfectly legitimate part of this cost.
- Per diem: You are allowed to use the government-set “per diem” meals rate. For frugal artists, this option generally works out better. You find the meals cost for the city you’re in, and deduct half that amount (because only 50% of meals are deductible) for each day of business, plus half the travel-day amount (which is less than a full day). For 2016 in Miami, the full per-diem rate is $64/day and $48/day for first and last days.
Clothing and other expenses
Although you may well buy a new outfit or two to look sharp at the fairs, this kind of clothing expense is never deductible. Clothing that can be worn outside of work can’t be deducted. Costumes for a performance, however, often do meet the standard if they are inappropriate as streetwear; the Guerrilla Girls can deduct their gorilla suits.
But here are some incidental expenses that you may claim: the cost of drycleaning and laundry while at your business travel location, taxis and airport shuttles, baggage fees, and internet charges.
So have a great trip to Miami this year. Meet lots of artists, make lots of connections, enjoy the meals and the scene, and remember to document your meetings on your calendar and in emails, and save your receipts.
* It is your responsibility by law to keep all documentation needed in case of an audit – receipts, calendars, mileage logs, emails + proof of business intent. How you keep these is up to you – you can use whatever system works for you.
DISCLAIMER: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This post is meant for general information only. Please don’t act on this alone.