An overall general principle governs all the details about tax deductions learned in registered tax return preparer education. That is, business expenses - including employee costs that are not reimbursed - are only deductible when they are not primarily personal.
Finding legitimate tax deductions is one of the critical tax preparer duties. This is especially important for taxpayers who itemize deductions. Most of these individuals are homeowners with itemized deductible categories consisting of home mortgage interest and property taxes. They can also deduct employee business expenses as miscellaneous itemized deductions.
The work of paid tax preparers entails finding enough miscellaneous deductions to exceed 2 percent of adjusted gross income. The excess comprises the deductible amount. However, the only deductible employee expenses are those required for job performance and not reimbursed by an employer. No deduction is allowed for expenditures that are not necessary for work. One of the facts normally illuminated in tax return preparer study is that personal travel is not tax-deductible - even if it has some tangential professional benefit.
A Los Angeles teacher went a little overboard when she attempted to claim a tax deduction for her travel on a cruise liner. A paid tax preparer study course reveals that teaching professionals are entitled to deduct the cost for classroom supplies - up to $250 per year - without itemizing. This tax rule has existed for a few years and has been renewed on occasion by Congress. In addition, teachers who itemize deductions are eligible to include all employee expenses as miscellaneous itemized deductions.
According to the Tax Court, the teacher went on a 10-night cruise in April 2007. The sea excursion sailed from Venice, Italy, to various Mediterranean locations. Her expenses of $8,516.73 included airfare, spa visits, a passport, and various onboard expenses. No professional education classes were associated with the cruise.
The teacher presented receipts that substantiated all the costs for the cruise. Normally, a tax return preparer job is focused on such substantiation concerns. But, in this case, proof of the expenditure amount was not the issue. As the Tax Court pointed out, tax deductions are disallowed for travel - including meals and lodging - unless evidence supports the amounts, times, places, and business purposes.
The judge ruled that the teacher's records covered all these points except the one for substantiating a business purpose. The cruise involved sightseeing and other recreation. Maybe the teacher's students will benefit from her cultural experience in the Mediterranean. However, the teacher is not allowed a tax benefit from travel that is primarily personal.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.