Can a husband and wife claim a tax deduction for a corporate board of directors meeting where they are the only participants?
Well, according to the IRS audit manual, the answer is no. Per the IRS audit manual, “Board meetings between husband and wife are not ordinary and necessary business expenses, but personal entertainment expenses, and are therefore not deductible”.
Thus, the official position of the IRS on this matter is that the husband-and-wife board of directors meeting dinner at Ruth Chris Steakhouse is not deductible.
But, at Gedeon Law & CPA, our research has discovered that this does not necessarily mean this meeting can’t be justified as a valid business expense.
How can you go about claiming a valid deduction for the meeting and getting around the IRS position?
Well, to start, it helps to hold the meeting out of town and away from your home.
Based on a tax court case we reviewed, an out-of-town corporate husband-and-wife board meeting can be deductible when there is an ordinary and necessary business reason for the travel.
According to the tax court decision, a husband and wife who want to deduct an out-of-town board meeting need to satisfy three criteria:
- They must show the trip out of town was necessary for business reasons,
- They must prove that the primary purpose of the trip is business, and
- They must prove that business took place on the trip.
With respect to the primary purpose of the trip is business, simply spending more days on business than on personal activities satisfies this requirement.
One of the more challenging tests is proving the out of town trip was necessary for business reasons. At Gedeon Law & CPA, we recommend clients follow the Bill Gates “think week” school of thought. Gates was known for leaving the office to travel to a destination free of distractions where he could spend time reading and researching.
For a lot of our clients, some other good reasons for going out of town are for peace and quiet, to get away from ringing telephones and to work somewhere that makes it easier to concentrate on their work. And of course, a lot of our clients take advantage of traveling to golf and ski resorts for purposes of team building exercises and corporate retreats.
So how do you meet the third criteria of proving business took place on the trip?
At Gedeon Law & CPA, we encourage clients to consider the following ways to document the work done on the trip:
- show proof that a business plan was created while on the trip,
- Keep recordings of actual business conversations concerning the business and discussions of the business plan
- Show that the work was done in a business setting
Now that you see the tax benefits of traveling out of town with your spouse to hold a board meeting, you’re probably wondering if there is a way to realize the same benefits through an in town meeting.
Unfortunately, the in-town husband-and-wife board of directors meeting is more difficult to justify than the out- of-town meeting. In the IRS’s eyes, talking with your spouse about business over dinner is like talking to yourself and therefore not a deductible expense.
At Gedeon Law & CPA, we’ve figured out a simple way you can get around this problem so you can deduct that fancy dinner at Morton’s down the street.
Simply invite a third party, like your favorite CPA who enjoys a nice prime rib, and now that meeting becomes deductible.
So the next time you’re looking at holding a board meeting with your spouse, consider the options discussed above and you’ll be well on your way to qualifying for a nice tax deduction.
Looking for tax saving strategies for your business? Contact the tax professionals at Gedeon Law & CPA and let our team of professionals’ help you take advantage of the many tax saving strategies available to business owners.