Got your attention, didn’t I?
Katy Perry graced the cover of the July 20, 2015 edition of Forbes. In the magazine’s annual survey, she was named the highest earning entertainer with estimated earnings of $135 million over the 12-month measurement period. The accompanying article portrays her as talented, bright, business-savvy, and intellectually curious. It highlighted her quest to learn about many of the places on her year-and-a-half-long Prismatic World Tour. Rather than hide out in her hotel rooms on tour, she donned disguises and retained experts to lead her on educational excursions to local institutions, such as the British Museum in London, the Colosseum in Rome, and Renaissance paintings in Florence.
Of course, I turned my attention to the tax aspects of these personal outings. I found some guidance in the last two weeks’ editions of Federal Taxes Weekly Alert Newsletter (RIA).
Traveling business people, including entertainers, can mix some pleasure with business travel. The rules differ some on whether the travel is domestic or foreign.
Generally speaking, in the case of a domestic trip undertaken primarily for business, travel costs under an accountable expense plan to and from the business site are tax deductible as business expenses. Lodging for the business days is deductible and 50% of meals and entertainment on business days is deductible. Lodging, meals and entertainment on nonbusiness days are not deductible, except in limited circumstances. When is a trip undertaken primarily for business? While the determination is based on “facts and circumstances” of each case, the regulations say that the ways that travelers split their time is an important factor.
Deductibility of travel outside the U.S. has some additional rules. If a taxpayer undertakes a trip primarily for business reasons, but also takes some personal days while abroad, the travel cost is fully deductible, if the taxpayer meets one of four tests. Otherwise, the travel costs must be allocated, generally using a daily allocation formula.
There is a myriad of other rules that could impact the deductibility of travel. For example, if a “common-sense test” would dictate that when a person stays over the weekend at a remote site in order to continue conducting business there in the next week, weekend lodging and 50% of meals are considered business expenses. Like this example, most of the rules about international travel are generally taxpayer-friendly.
So, maybe Katy’s education sessions are not deductible, but that should not affect her other deductions. And, who knows? Maybe Katy’s edification sessions are integrally linked with development of new products, services, and collaborations – all business-related and rightfully deductible.
Katy, if you don’t have a sharp CPA advisor on your team, call me maybe?