Dear Liz: My two brothers have taken over managing my 81-year-old mother’s two rental properties. They have told her that a ski vacation she paid for, which she took with their two families, is a business deduction. Same with many other credit card purchases. Are they putting my mother at risk?
Answer: Two other brothers have gotten a lot of heat for charging ski vacations to the company credit card. Their names are Mark and Andrew, and their dad’s name is Bernie Madoff. Ring a bell?
It is possible to combine a vacation with a business trip and deduct some of your own expenses. But writing off family members’ expenses, or even your own transportation costs if the trip was primarily for pleasure, isn’t smart. If she’s ever audited, your mother is going to have a tough time explaining how your brothers’ wine tab and her granddaughter’s skiing lessons qualified as a business expense.
The rules, which can be complicated, are laid out in IRS Publication 463, Travel, Entertainment, Gift and Car Expenses. But your mother clearly needs more than a pamphlet at this point. She should have her own tax professional, preferably a Certified Public Accountant or an enrolled agent familiar with rental property rules, to advise her and review her tax returns. Your brothers are playing fast and loose with tax laws and it’s your mother who could pay a big price if she’s ever audited.