Clergy Advantage

New Tax Court Ruling on Multiple Residences and Housing Allowance

jenny — Mon, 13 Feb 2012 21:02:48 +0000

by Steve Merriman, EA

A few days ago the Appeals Court ruled on the Driscoll case (CA 11 2/8/2012) 109 AFTR 2d, regarding housing allowance deductions on multiple residences is finally out. As expected, the tax courts ruled that the clergy housing allowance can only be used for a primary residence and no more than one residence at a time.

The Appeals Court reversed the Tax Court decision that allowed a parsonage allowance on multiple residences.

As odd as it sounds and disappointing to some, I actually think this ruling is in the majority’s best interest. Allowing housing allowance deductions on multiple residences has the potential for great abuse and could therefore jeopardize the housing allowance in the long run. Take this opinion in light of the fact that we at Clergy Advantage consider clergy housing allowance to be one of the most valuable tax benefits ever. As such, it must be properly protected, valued and implemented.

If you are planning to move from one home to another or reside in more than one place or home at different times of the year, you may still switch your housing allowance to whichever home is your primary residence at the time. That means that housing allowance may be claimed on different homes in the same year, provided they are used one at a time for deductions.

Important info regarding your 403(b) and Social Security Tax

jenny — Mon, 06 Feb 2012 17:44:27 +0000

We’ve seen documentation of seriously incorrect advice from other ‘clergy retirement professionals’ about Social Security tax on housing allowance that may be costing you significant tax savings & money.

The question is whether ministers must pay Social Security tax on 403(b) retirement distributions or contributions. Some have been mistakenly advised that clergy who receive retirement benefits but continue their service in the ministry will have to pay self-employment taxes on their retirement benefits designated as housing. Our official position on this and we stand by it is: YOU DO NOT. If you are a minister and have been told that you must include this on your schedule SE, it is incorrect advice.

Doing so will cause you to lose considerable tax savings and opportunities that Congress has intended you to have. Simply put, any denominational retirement 403(b) that is set up and administered properly or the Clergy Advantage 403(b) will completely bypass all Social Security tax on money going in and money coming out.

This is a unique advantage available only to clergy. (Hence the name of our retirement plan, the Clergy Advantage 403(b), which is designed for that very purpose).

Much of this is explained in more detail in our free webinar, “Tax-Free Money for Ministers”. Please register on our home page or call us for clarification and personalized tax saving strategies.

Social Security Allowance is a Confusing Topic for Churches

jenny — Tue, 31 Jan 2012 22:40:18 +0000

Ministers or church leaders often ask our advice on how to figure the amount of the Social Security Allowance. The IRS does not require churches to pay a Social Security Allowance to its minister staff and provide no guidance on how to structure it. As a result, many churches have devised many ways to structure the Social Security Allowance. While there is not a right or wrong way to do this, many churches make the calculation too complex and confusing.

First, we suggest that the amount be set at whatever the church would be paying in “Employer Social Security and Medicare Taxes” to a non-pastor staff member with that same level of pay. This would be 7.65% of their total pay and would be paid to all ministers regardless of whether the minister has opted out of Social Security.

There is a compelling simplicity and a sense of fairness for a church to say: “For all of our workers, we will pay a Social Security (and Medicare) amount equal to 7.65% of their total pay (up to the Social Security ceiling of $110,100).” For non-pastors this comes in the form of the government-required employer contribution to Social Security and Medicare. For pastors, it comes in the form of a Social Security Allowance equal to 7.65% of salary and housing.

While I totally understand the initial inclination to exclude pastors who are exempt from Social Security and to reduce the Social Security Allowance for ministers who are contributing to a 403(b) retirement account, I suggest that it might be more ‘fair’ and appropriate to not exclude exempt ministers and not reduce the Social Security Allowance for ministers who contribute to a 403(b) retirement account.

In making this suggestion, we are proposing that the church base the Social Security Allowance only on the worker’s total pay and on the current Social Security and Medicare tax rate for employers, rather than basing the Allowance on the minister’s actual Social Security tax liability.

This is an important distinction. The minister’s actual Social Security tax liability can be impacted by various other factors including un-reimbursed ministry expenses and the existence of income from other sources which could conceivably push some minister’s work income beyond the $110,100 Social Security ceiling, thus reducing the amount of Social Security tax that they pay on their church income.

In addition,

paying a larger Social Security Allowance to ministers who do not contribute to their retirement account could appear to be a subtle bias toward having ministers not make 403(b) retirement contributions.
Similarly, paying a Social Security Allowance to ministers to have not opted out, but withholding it from ministers who have opted out, could conceivable be seen as unfair by those who have opted out.

There is a practical reason for ignoring 403(b) retirement contributions when setting the amount of the Social Security Allowance: The IRS allows employees to change the amount of their elective contributions to 403(b) from time to time. Having to change the Social Security Allowance every time a minister changes their 403(b) contribution makes things unnecessarily complicated.

We realize that it sounds quite odd to suggest paying a Social Security Allowance to ministers who have opted out of Social Security! My additional rationale for proposing that is this:

Those ministers who have opted out of Social Security will need to invest in other programs (alternatives to Social Security) to make sure that they – and their families – are covered for retirement, survivor benefits, and disability benefits.

Generally, the decision to opt out of Social Security significantly reduces the future benefits that those ministers will receive from Social Security. As a result, we strongly advise ministers who have opted out of Social Security to set aside an amount comparable to what they would be paying in Social Security taxes, and use those comparable funds to pay for increased life insurance, dramatically increased retirement funding, and perhaps disability insurance

Overlooked tax deductions

jenny — Mon, 23 Jan 2012 19:08:57 +0000

Listed below are some frequently overlooked tax deductions that might help reduce your tax bill. Please remember that whenever we talk about taxes, the following caveats apply: “It depends,” and “these deductions may not apply to all taxpayers.”

If you have any questions about these or any other tax-related matters, please let us know. We look forward to talking to you or seeing you soon!

Charitable contributions: In addition to the usual cash donations that you have made throughout the year, you may be able to deduct the cost of using your vehicle if you volunteer your time or provide a service to a qualified charitable, educational or nonprofit organization.

There are two options available for claiming vehicle expenses and, naturally, the IRS requires you to have “reliable written records” for either method:

To use the standard charitable mileage rate of 14¢ per mile, your records must show

1. the name of the organization,

2. the dates you drove your car for your charitable work and

3. the number of miles driven.

To use the actual vehicle expenses, your records must show the costs of operating your vehicle that directly relate to your volunteer work.

You can also deduct parking fees and tolls regardless of which method is used.

Additionally, money spent out of your own pocket within the scope of your volunteer work may be deductible. These expenses might include office supplies, uniforms, and even travel expenses if you were away from home while performing your charitable service. Documentation requirements for out-of-pocket expenses are:

1. You must have “adequate records” to prove the amount of the expenses.

2. Obtain an acknowledgement from the organization before you file your tax return that contains a description of the services you provide, a statement that says you were not reimbursed for the expenses, and that you receive no tangible (other than religious) benefit from the organization.

The final point under the category of charitable contributions, is simply a reminder regarding noncash contributions: In recent years the IRS has stiffened the required documentation for donations of clothing and other household items to nonprofit organizations like the Salvation Army or the Goodwill Industries. “Three bags of clothing” or “two boxes of books” is not an adequate description of the donated items to claim the deduction. You must have:

1. A list of the donated items along with their fair market value

2. And some form of receipt or acknowledgement from the organization.

Here are a few handy websites to help you evaluate your noncash items:

Two different Salvation Army evaluation guides can be found here:

http://www.satruck.com/ValueGuide.aspx

http://www.salvationarmysouth.org/valueguide.htm

You can download an evaluation guide from the yellow box in the middle of this Goodwill Industries web page:

http://www.goodwill.org/get-involved/donate/taxes-and-your-donation/

This Usedprice.com link contains Blue Book valuations for different categories of noncash donations from television sets and computers to guns, musical instruments, power tools and more:

403(b) Contributions Have Increased in 2012

jenny — Wed, 04 Jan 2012 00:07:24 +0000

The new year is starting out with a positive change regarding retirement contributions. The limit for salary deferred contributions to your 403(b) is now up to $17,000 for those under age 50 and is at $22,500 for those over 50. The total limit including employer contributions can be as much as $50,000 in some cases. Call to learn more or to develop a clergy specific plan using your unique tax benefits in your retirement plan.

Housing Allowance for Secondary Residence?

jenny — Wed, 28 Dec 2011 20:11:56 +0000

The Driscoll v. Commissioner Tax Court case where the court allowed the clergy housing allowance on the minister’s primary house PLUS his lake house has caused a bit of controversy that we’d like to address.

We are very familiar with the case and have been following it closely. Remember that the IRS has appealed this case and has not acquiesced to the Tax Court decision. We are anticipating a ruling from the Appeals Court sometime during 2012.

Because of that, our recommendation is to NOT rely on the Tax Court decision, but instead, wait for a ruling from the Appeals Court. After the Appeals Court rules on this case, we will provide a complete analysis to anyone interested.

In the event a minister has a second house, we recommend that the employer designate a housing allowance in an amount that will cover the housing expenses of both homes in the event the Appeals Court rules in favor of the Taxpayer. However, do not exclude from gross income the housing expenses of the second home until we complete our analysis of the Appeals Court decision.

IRS Announces Mileage Rates for 2012

jenny — Thu, 15 Dec 2011 17:32:54 +0000

IR 2011-116; Notice 2012-1, 2012-1 IRB.

The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2010-51, 2010-51 IRB 883, see Federal Taxes Weekly Alert 06/30/2011).

Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. (Rev Proc 2010-51, Sec. 9.01) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee’s personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. § 1.61-21(e)(1) are met.

A separate rate applies for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. (Rev Proc 2010-51) The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that’s not adjusted for inflation. (Code Sec. 170(i))

IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an auto. However, IRS announced a mid-year adjustment to the 2011 standard mileage rate for travel from July 1, 2011 to Dec. 31, 2011 to better reflect the real cost of operating an auto in the current period of rapidly rising gas prices. For the last half of 2011, the rate was raised to 55.5¢ per mile for business travel and to 23.5¢ per mile for using a car to get medical care or in connection with a move that qualifies for the moving expense (see Federal Taxes Weekly Alert 12/09/2011).

RIA observation: The advantages to using the standard mileage rate include:

· Mileage rate users need not keep a record of actual expenses, or retain receipts where required. A record of the time, place, business purpose and number of miles traveled suffices.

· If an auto’s business expenses are deducted via the mileage rate, it is not subject to the Code Sec. 280F dollar caps or the special rules that apply if qualified business use does not exceed 50% of total use.

· The mileage rate method may yield bigger deductions than the actual expense method for a thrifty, high-mileage model.

RIA observation: One of the disadvantages to using the standard mileage rate is that the mileage rate method may produce a smaller deduction than would be obtained by claiming actual business-connected operating expenses plus depreciation (or lease payments). Also, use of the mileage rate method prevents the taxpayer from claiming regular MACRS deductions (subject to the luxury auto dollar caps) for the auto in later years.

Standard mileage rates for 2012. Notice 2012-1 provides that the standard mileage rate for transportation or travel expenses is 55.5¢ per mile for all miles of business use (business standard mileage rate). The standard mileage rate is 23¢ per mile for use of an auto (1) for medical care described in Code Sec. 213; or (2) as part of a move for which the expenses are deductible under Code Sec. 217. The standard mileage rate is 14¢ per mile for use of an auto in rendering gratuitous services to a charitable organization under Code Sec. 170. (Notice 2012-1, Sec. 2)

As Notice 2012-1 notes, taxpayers using the standard mileage rates must comply with Rev Proc 2010-51. Accordingly, the standard mileage rate may not be used for a purchased auto if:

· it was previously depreciated using a method other than straight-line for its estimated useful life;

· a Code Sec. 179 expensing deduction was claimed for the auto;

· the taxpayer has claimed the additional first-year depreciation allowance;

· the taxpayer depreciated it using MACRS under Code Sec. 168; or

· the taxpayer is a rural mail carriers who receive qualified reimbursements. (Rev Proc 2010-51)

A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business-connected portion of actual expenses, so long as he depreciates it from that point on using straight-line depreciation over the auto’s remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. (Rev Proc 2010-51, Sec. 4.05(3))

Depreciation. For 2012, Notice 2012-1, Sec. 3, provides that the depreciation component of the mileage rate for autos used by the taxpayer for business purposes is 23¢ per mile for 2012. (It was 22¢ per mile fore 2011; 23¢ per mile for 2010; 21¢ for 2009 and 2008; and 19¢ per mile for 2007). The depreciation component reduces the basis of the auto for gain or loss purposes. (Rev Proc 2010-51, Sec. 4.04)

FAVR plans. A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period. (Rev Proc 2010-51, Sec. 4.05(2)) Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned). For 2012, the standard auto cost used to compute the FAVR allowance cannot exceed $28,000 (up from $26,900 for 2011). For trucks or vans, the 2012 standard auto cost used to compute the FAVR allowance cannot exceed $29,300 (up from $28,200 for 2011). (Notice 2012-1, Sec. 4)

Applications of mileage allowance to a fleet. Under current rules, the standard mileage rate can’t be used to compute the deductible expenses of more than four autos owned or leased by a taxpayer and used simultaneously (such as in fleet operations). (Rev Proc 2010-51, Sec. 4.05(1)) In Notice 2010-88, 2010-51 IRB 882, IRS asked for public comments on whether the-five-or-more car limitation for the standard mileage rate should be retained. In Notice 2012-1, after considering the single comment received and because of the limited response, IRS has said that it will currently make no changes to the limitation in Rev Proc 2010-51, Sec. 4.05(1).

When the new rates are effective. The revised standard mileage rates in Notice 2012-1 (55.5¢ for business; 23¢ for medical or moving) apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after Jan. 1, 2012, and to mileage allowances or reimbursements that are paid both (1) to an employee on or after Jan. 1, 2012, and (2) for transportation expenses paid or incurred by the employee (or charitable volunteer) on or after Jan. 1, 2012.

RIA Research References: For the optional mileage allowance, see FTC 2d/FIN ¶ L-1903; United States Tax Reporter ¶ 1624.157; TaxDesk ¶ 293,005.

Source: Federal Tax Updates on Checkpoint News tab 12/12/2011

The Incredible Value of an Accountable Plan for Ministers

jenny — Sat, 17 Sep 2011 19:08:47 +0000

I ran this notice in the last newsletter but want to reemphasize the importance of an Accountable plan for ministers. After learning of the current IRS focus at this year’s National Forum, and observing a 5-fold increase in “IRS Notices” to our clients this year, I must stress the all too real vulnerability that you and other ministers have for audit potential.

There are two areas that cause the most problems for pastors on their tax returns:

1. Charitable contributions because they’re typically disproportionately large. (This is easily defended if you keep good records, and most of you do). However, here’s my real concern;

2. Ministry expenses are frequently not adequately accounted for and thus can cause incredible hassles not to mention a huge loss financially. We’re seeing this too often. Those expenses include car mileage, travel, meals and entertainment among other things. Wrongfully accounting for ministry expenses can cost a lot in missed savings every year and be one of the biggest areas of contention on your tax return. This can put you at greater risk of audit if you do NOT have an Accountable Plan that is properly set up and implemented.

It grieves me to see ministers spending money for us to represent them in an unnecessary audit. So, for these reasons, we’ve declared October the month of the “National Accountable Plan for Ministry Expenses” (actually it’s now extended to the end of the year) and made the workshop available AT NO COST.

I hope you will use this tool to increase tax savings, reduce audit potential and make it easier for your board to see what you’re actually making. (Which in our experience often results in a pay raise!)

If done right, an Accountable Plan will almost always increase your pay while it removes a HUGE area of AUDIT potential at no additional cost to you or the church! Hence, there’s no downside, so no reason to put it off any longer.

Click “Upcoming Events” to register to view the video or find the link on our home page. Call for more information or a personal consultation 970-667-5819.

Fear is a Poor Strategy

jenny — Wed, 10 Aug 2011 02:54:08 +0000

Fear is NOT a good Strategy

Last week we all listened and watched the “deficit debates” and the ensuing media commentary that seems to be designed to alarm even the most stalwart observer.

As the S&P slid into another “unprecedented downgrade” subsequent to the media hype, many investors began “selling first and questioning later.” It’s understandable that many jumped to the conclusion that this is a repeat of 2008. But wait:

It’s easy to forget that the market dropped 15% last summer due to the same media fear mongering about Europe debt woes, our own country’s legitimate deficit concerns, concerns about a double dip recession….remember? Pundits warned then (as now) that, “if you think August was bad, wait til September! September is historically the worst month of the stock market.”

The reality is that banks are much better capitalized and money is moving much more freely than in the 2008 credit crisis.
Furthermore, last September wound up being the best performing month in 71 years.

Unprecented? I’ll say. Ironically, many investors are buying Treasury Bonds by the boatload in record numbers, even though yields are down 10 basis points as of the morning of this writing. These are the very bonds that are the real culprit of this whole ‘crisis.’ The talk is that the government might default on treasury bonds. Obviously, it makes no sense to sell the part of our economy that is showing strength (corporate earnings or stocks) to buy what is weak and fragile (bonds).

So why, you ask, are people doing this? One word: “fear.” It is always a challenge to filter through the media noise and make sound decisions when so much is seemingly at stake. This is especially true when waves are pounding your accounts in the wake of a tsunami. What is really so unsettling about all of this is that there’s nothing “unprecedented” at all. It’s the same old script.

We’re not downplaying the significance of this summer’s market uncertainty and the very real urge to bail out for safer terrain when the waves keep rolling in. We just don’t want fear to be part of your long term portfolio or strategy. It has never worked well for anyone in the past and we don’t expect that to change anytime soon. History tells us that this type of environment offers the best investment opportunities. Investor patience and a quality portfolio have always yielded the highest rewards.

We hope these thoughts will help you make more informed decisions about your financial strategy. We welcome your call if you have questions or concerns about your current investment strategies.

Mixing Business with Pleasure can be good for you and your pocket book.

jenny — Fri, 24 Jun 2011 21:01:38 +0000

Tax breaks are available for travelers who mix a bit of pleasure with their business travel

Although video conferencing and electronic communication have made inroads in the ranks of business travelers, there still are many situations where it’s necessary to travel for face-to-face meetings. Businesspeople or ministers who must travel for work reasons should keep in mind that they may be able to qualify for a travel bargain by piggybacking a vacation onto an out-of-town business trip.

In effect, the business traveler gets free vacation airfare if the trip is set up the right way. And if the travel is undertaken for an employer, a properly set up reimbursement arrangement for the business portion of the trip will be income- and payroll-tax-free.

Let’s take a closer look at how this combination works for domestic travel, along with a review of other business travel strategies that may yield personal savings. It doesn’t cover some of the more specialized rules, such as those that apply to travelers in the transportation industry, or the per diem reimbursement rules.

Deductions for trips undertaken primarily for business. A taxpayer who mixes a bit of pleasure with business while away from home nonetheless may deduct all of the round-trip transportation costs as long as the trip was undertaken primarily for business reasons. The cost of lodging plus 50% of meals while on business status is deductible. Additionally, if the traveler is an employee reimbursed for all expenses under an accountable plan that requires a timely accounting of the time, place, and business purpose of the travel, plus receipts, the reimbursement is tax-free to the traveler but the personal portion of the trip yields no tax benefit. This is another great example of why an Accountable plan is so beneficial for ministers. It must be set up and managed properly, but there isn’t a better way for most ministers to save on ministry expenses. It can put considerable savings back in your pocket, each and every year of ministry. For more details about the six major advantages and how to do this right, check out our webinar, “Don’t let Ministry Expenses Eat Your Lunch.”)

In effect, the 100% deduction for the round-trip travel costs works as a kind of tax subsidy for a personal vacation, or as a partially tax-free perk.

Illustration 1: Jane, a minister, flies from the East Coast to Los Angeles for a 5-day business trip. She takes in three days of vacation and sight-seeing after the business part of the trip is over.

Result: Because Jane can deduct the entire air fare, part of her mini-vacation is, in effect, subsidized by the tax break.

Illustration 2: The facts are the same as in illustration (1), except that Jane is employed by a church that reimburses her for the business portion of the trip after she submits detailed records and receipts. She pays for the personal portion of the trip (meals and lodging during the three personal days).

Result: Under the accountable plan rules, the reimbursement for the round-trip airfare (as well as for meals and lodging while on business status) is tax-free to Jane. That’s true even though she took a mini-vacation after her business trip ended.

Illustration 3: The facts are the same as in illustration (2), except that the church or employer reimburses Jane for the cost of the entire trip, including the 3-day mini-vacation. Result: Her cost for the personal portion of the trip consists of the tax she pays on the personal portion’s value (hotel, meals, etc.), which must be treated as compensation income.

When is a trip treated as undertaken primarily for business? There is no hard-and-fast rule. It depends on the facts and circumstances of each case. The regulations do say, however, that the way travelers split their time between business and personal pursuits is “an important factor.”

Illustration 4: Fred pastors in Atlanta and travels to New Orleans for a ministry related conference. On his way home, he stops in Mobile to visit his parents. During the nine days he is away from home, he spends $1,999 for travel, meals, lodging, and other travel expenses. Had he not stopped in Mobile, Fred would have been away from home for only six days and his trip would have cost only $1,699.

Result: Fred can deduct $1,699 for his trip, including the round-trip transportation to and from New Orleans. The 50% deduction limit applies to his meals while on business status.

Another note, the personal part of a trip need not occur at the business destination. It can take place on the way home from the business destination (or, for that matter, en route to the business destination).

Caution: Taxpayers who make a stop for personal reasons en route to a business location or on the way home should be sure to keep records of what their round-trip transportation costs would have been without the personal stop.

Saturday night stay-overs. Although an employee’s out-of-town business chores conclude on Friday, he may extend his business trip to take advantage of a low-priced fare requiring a Saturday night stay-over, where the savings in airfare are higher than the costs of the weekend meals and lodging. The employee doesn’t pay tax on the reimbursement for his Saturday meal and lodging expenses. In this case, IRS said that under a “common sense test,” payments to the employee for the Saturday stay were deductible if a “hardheaded business person would have incurred such expenses under like circumstances.”

When a personal day may not be a personal day. An away-from-home business trip may straddle a weekend. For example, a traveler may have to attend business meetings on Thursday, Friday, and Monday. He is too far away to travel home and then come back (and besides, the trip back and forth would cost more than staying put), so he spends the weekend relaxing at the out-of-town location. Because he must remain at the location for business reasons, the weekend days (Saturday and Sunday) should under the “common sense test” be treated as business days the expenses for which are deductible (50% of meal costs, 100% for other expenses) and can be excluded if the traveler is reimbursed under an accountable plan. Note that in the context of foreign travel, the IRS treats such standby days as business days.

Tax break for weekend travel home. A business traveler on an extended out-of-town assignment may decide to fly home for a weekend to be with family or friends. The cost of the weekend trip home is deductible up to the amount the traveler would have spent on meals and lodging at the out-of-town location. Note, however, that this rule applies only if the traveler checks out of the out-of-town hotel before leaving for the weekend trip home, and then re-registers. If the traveler retains the hotel room, its cost is deductible, but the deduction for the weekend trip home (i.e., the air fare) is limited to what the traveler would have spent on meals during the weekend at the out-of-town location.

Tax breaks when spouse or companion comes along. The expenses of a spouse or other companion accompanying a traveler aren’t deductible unless (1) the spouse or other companion is an employee of the taxpayer and travels for a bonafide business purpose, and (2) the expenses would otherwise be deductible by the spouse or other companion.

Nevertheless, even if the spouse’s or other companion’s travel expenses aren’t deductible, a tax benefit may still be salvaged from traveling together. That’s because the business traveler’s deduction isn’t based on 50% of the trip expenses. The deduction is based on what it would have cost the taxpayer to travel alone. This rule can be a money saver on accommodations. For example, where the cost of a hotel room is $100 for one occupant and $149 for two, a taxpayer on business status may deduct $149 per night, not $100, when he gets a room for two.

Similarly, where the taxpayer travels out of town on business via rental car, and his spouse or other companion accompanies him for non-business purposes, the entire cost of the rental is deductible, because the cost would have been the same for the taxpayer even if his spouse did not join him on the trip.

Publication 463 referenced in this article can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/p463.pdf .