Deducting Disneyland Trip As Business Travel?
by Michael Plaks, E.A. Posted May 9, 2013
Today I provided a consultation for a new client who had just been audited by the IRS. She is an artist, and a legitimate one at that. Her paintings sell. She sells $2,000-$3,000 worth of artwork per year. Not enough to travel the world, but enough to visit Disneyland (more on that later). Of course, she has to buy art supplies, take some classes, pay entree fees for the art shows, etc. Ė spending maybe $1,000-$1,500 each year. All of these costs are deductible business expenses, reducing her taxable income. In other words, we have a small business with $3,000 income minus $1,000 expenses, resulting in $2,000 taxable profit. Pretty clean, if you ask me.
Then why did the IRS have a problem with this lady? Because these were not the numbers reported on her tax return. See, the artist had a friend. We all have such friends. They know how stuff works, and they are nobodyís fools. That friend coached my client to ďmaximizeĒ her tax benefits by claiming this and that, and then some more. And maximize he did. Now the newly enlightened artist had $30,000 of so-called business expenses (including, you guessed it, a Disneyland vacation, err, business trip) and a huge tax refund. This money came handy and was promptly spent. Shortly after, she also had an IRS audit. Now she has a minor inconvenience of owing the IRS almost $20,000 in back taxes and penalties for the two audited years.
Unfortunately, well-meaning ignorant friends have strong competition in the bad advice arena. It also comes from certain CPAs. And because these CPAs are not in the business of defending their clients (like I am) but in the very different business of selling books and subscription newsletters, their motives are suspect. Itís an open secret that the best way to sell information is to sell the information that people want to hear. Smokers want to see studies that smoking does not cause cancer. Taxpayers want to hear that they do not have to pay taxes. Good news sells better than good paintings.
Today also (interesting coincidence, isnít it?) I received a newsletter from a nationally-known CPA whose declared mission is to educate folks about little-known tax loopholes. So far so good. I love loopholes as much as the next guy does. Whatís his latest lesson in tax reduction? Itís terrific, people! Turns out I can deduct taking my entire family to Disneyland, as long as I also attend some business conference in Orlando the day after. Wow, ainít it great to be that smart?
Iím not even talking about the logistics of attending a business conference during a family vacation. Confession: I was stupid enough to try it once (and not for a tax deduction), many years ago, and I will not try it again. Letís say you do trick your family into this awful idea. Is it tax-deductible then? Gimme a break! This CPAís clumsy attempt to fit family visit to Disneyland into the IRS definition of business-related entertainment is so poorly executed and is so misguided Ė Iíd say itís bordering on malpractice. Itís not worth analyzing. It simply will not hold any water. Magic is fun, but it quickly dissipates once you exit Disneyland. Of course, why does this CPA care? He sells you his newsletter; he does not sign your tax return. And he wouldnít sign it even if you pay him, because he knows very well that he will be penalized for taking such reckless position.
And you think you would be able to quote his article as your defense when the IRS comes knocking on your door? Dream on, my friend! You just visited Disneyland, so youíre no stranger to fairy tales. Just keep my telephone number handy. You will need it soon.
Reprinted courtesy of Michael Plaks. Visit www.MichaelPlaks.com †The information and opinions presented in the above article are general in nature, not intended to address specific tax situation and/or to substitute for professional consultation, and shall not be considered legal advice. Email: michael@MichaelPlaks.com or call 713-721-3321. He is a federally licensed Enrolled Agent who can represent his clients in their dealings with the IRS.