Business and personal expenses

Dec. 1, 1998
I plan on attending a dental meeting and would like to include some personal time postconvention. Would you please review IRS guidelines for expense deductions for travel, meals, and lodging when a business meeting is combined with a personal vacation? Are deductions affected if personal days exceed business days? How are travel days entered into the equation? Any tips for maximizing the deductibility of expenses?

Charles Blair, DDS

John McGill, MBA, CPA, JD

I plan on attending a dental meeting and would like to include some personal time postconvention. Would you please review IRS guidelines for expense deductions for travel, meals, and lodging when a business meeting is combined with a personal vacation? Are deductions affected if personal days exceed business days? How are travel days entered into the equation? Any tips for maximizing the deductibility of expenses?

Doctors combining business and personal reasons for a trip should use the following strategies in order to maximize tax deductibility. First, travel costs to and from the destination are fully deductible, so long as the primary purpose of the trip is for business. In addition, other expenses such as local transportation (taxis, rental cars, etc.) and lodging expenses allocable to the business portion of the trip also are 100 percent deductible, along with any registration or seminar fees. However, the deduction for meals is limited to 50 percent of the total cost. Finally, we do recommend that doctors employ their spouse in their practice; otherwise, no deduction is allowed for the expenses of a spouse on a business trip.

While the doctor should have more business than personal days in order to qualify the trip as "primarily for business," there is one exception. The IRS has ruled that expenses incurred to take advantage of lower airfare through a Saturday stayover would not be considered as personal expenses, so long as the extra expenses do not exceed the airfare savings. Accordingly, tax- savvy doctors can take advantage of two fully deductible "personal days" at the end of a business meeting, if their meeting ends on Thursday.

Several years ago, my family established a family limited partnership as a result of your recommendations. Each year, my husband and I transfer limited partnership interests to our children, as part of a program to fully utilize our annual gift-tax exclusions. Our ultimate goal is to transfer all of the limited partnership interests (95 percent of the partnership) to the children, while retaining only the general partnership interest. Recently, I have heard that family limited partnerships are under attack and we can no longer do this. Is this correct?

There has been no legislation passed or pending that would eliminate the family limited partnership as the vehicle to achieve significant federal and state income- and death-tax savings. However, one attractive feature of family limited partnerships is under attack. Because of the nature of the limited partnership interests and the restrictions contained in the partnership agreement, the value of the limited partnership generally is discounted due to its lack of marketability and the fact that it represents a noncontrolling interest in the partnership.

In the past, there have been abusive situations where partnerships have been established shortly before death and extremely high discounts have been taken. The IRS has been closely scrutinizing these abusive situations lately and seeking to disallow substantial discounts. While President Clinton`s 1999 budget proposal recommended valuation discounts be eliminated unless the partnership`s underlying assets were business interests, this proposal has not passed and is not expected to be passed in the future.

Accordingly, we recommend continuing with your current strategy, but consulting with your estate-planning attorney for periodic updates regarding this matter. In addition, we would recommend that valuation discounts be taken only if supported by a sound appraisal from a qualified valuation expert.

Dr. Blair is a nationally known consultant and lecturer. McGill is a tax attorney and MBA. They are the editors of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes, and protect assets. The newsletter ($149 a year) and consulting information are available from Blair/McGill and Company, 4601 Charlotte Park Drive, Suite 230, Charlotte, NC 28217 or call (704) 523-5882.

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