Travel to a Fancy Resort Hotel Where You Use Your Laptop for Continuing Education (CE)
You may have stumbled on an unusual Continuing Education (CE) opportunity that feels like a vacation.
It works like this:
- You take the classes on your laptop.
- You sit alone in your five-star resort hotel room.
- During the class, you are on the internet with other attendees who are sitting in other five-star resort hotel rooms in the same time zone.
- You attend the class for just over four hours each class day.
- You earn CE credits.
Now you have the basics.
What Could You Deduct?
Assuming the CE event occurs in the Virgin Islands at a St. Thomas resort and qualiﬁes as a tax-deductible business education event, you could deduct
- The tuition (say, $700),
- Airfare and other travel (say, $5,000),
- Hotel room (say, $7,000), and meals (say, $1,500).
- Yep, thatʼs a lot. You might spend far less—or more.
You face one hurdle. Is this a CE event or a disguised vacation?
If itʼs a CE event thatʼs ordinary and necessary to your business, itʼs deductible and so is the travel.
Letʼs start with the little more than four hours you spend each workday on education while at the resort. Does that rise to the level of a workday?
When you travel to a foreign destination (which St. Thomas qualiﬁes as, for purposes of the travel rules), you donʼt need to attend classes for eight or more hours for tax law to call your education day a business day. You have a business day when, during normal business hours, your principal activity is the pursuit of business. (Here, the education qualiﬁes as pursuit of business.)
In tax law, principal or primary simply means the majority, and in the U.S., our normal workday is eight hours. Thus, you only need to work four hours and one minute to make that day a business day. Logging in on your laptop for just over four hours and then shutting down means that you have spent more than four hours in the pursuit of business on each education day.
The IRS. According to the IRS, 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, wonʼt change what is really a vacation into a business trip.
Congress. While enacting the Tax Reform Act of 1986, conferees stated that videotapes of lectures on topics related to the taxpayerʼs trade or business, to be viewed at the convenience of the participant, do not rise to the level that permits deductions for travel or meal costs.
The conferees went on to state, however, that when a participant must attend the videotaped or televised materials in person, then the general rules for deducting travel costs apply.
Here are some arguments in your favor:
- You had to be in this hotel, or some other authorized hotel in the same time zone, to attend the event.
- You had to attend during the scheduled time to obtain CE credits.
- The course is obviously a business-related course because it qualifies for continuing education.
- You are in a session with and communicating with your fellow professionals.
North American Area
For a convention, meeting, or seminar outside the 50 U.S. states to easily qualify as a deductible business event, it must occur in the tax-law-deﬁned North American area.
St. Thomas, for example, is in the deﬁned area.
This means that you must have an ordinary and necessary business reason to attend an educational event in St. Thomas, and that reason need be no different than the reason for attending the same event in Chicago or Kansas City.
Percentage of Travel Costs for Deduction
On this trip, you face the following rules that can affect the amount of your tax deductions for airfare, hotel, and meals:
- If the trip is for seven days or less, excluding the day of departure, you deduct all the travel of getting to and from St. Thomas.
- For each business day, you may deduct your hotel and meals.
- Weekend days can become business days depending on the travel.
If the trip to St. Thomas lasts more than one week, you face the 76/24 test, where spending 76 percent of the days on business triggers a 100 percent deduction for the transportation costs of getting to and from St. Thomas.
Wonʼt the IRS consider the $14,200 spent for this education event too expensive and disallow the expenses?
No, we have not seen an expense disallowed because it was lavish or extravagant. Weʼre not alone.
The Bloomberg BNA Tax Management Portfolio on entertainment deductions states: “No reported case to date has upheld a disallowance under Section 274, in the case of either meal or entertainment costs, or under Section 162, in the case of travel costs, on the grounds that they were ʻlavish or extravagant.ʼ”
This article highlights an innovative continuing education opportunity where participants can earn credits while staying at a ﬁve-star resort hotel.
While it may initially seem like a disguised vacation, we note the many factors that make this experience tax-deductible as a business education event, including the following:
- Attending the event in person within the same time zone as other attendees is mandatory for earning CE credits.
- The course content is business-related and qualifies as continuing education.
- Participants communicate with fellow professionals during the sessions.
- St. Thomas is within the tax-law-defined North American area, meaning no special rules apply to the educational event, and the more liberal foreign rules apply to the travel.
Depending on the duration of the trip and the number of business days, tax deductions for airfare, hotel, and meals may be available.
Finally, the IRS is unlikely to disallow expenses based on the perceived lavishness or extravagance of the event, as no reported case has disallowed lavish or extravagant expenses under Sections 274 or 162.
Are you ready for a game-changing educational experience that will ignite your career like never before!
Hopefully, you found a blend of business and leisure in this article that will have you rethinking continuing education possibilities. Imagine attending top-notch courses while indulging in the luxuries of a five-star resort hotel. You can now reshape the way you approach learning.
At Morris + D’Angelo, we are passionate about empowering our customers to make the most of their financial assets through smart tax optimization strategies. If you have questions or concerns about how you might be able to enjoy your Continuing Education opportunities and options, our expert team is here to help.
Don’t let complex tax laws hold you back – contact us at Morris + D’Angelo to learn how we can support your financial success! This is our Expertise!
Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo
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