Introduction The US Tax Code excludes nine types of fringe benefit expense from taxable income. Business Travel Expenses that are "lavish or extravagant", says the IRS, are not tax deductible. Qualified Tuition Reduction A qualified tuition reduction is tax-free. Housing Most types of job-related housing cost are deductible. Pensions Tax-privileged retirement plans: ERISA, ESOPS, IRAs etc. Company Cars Personal use of a company car is usually a taxable non-cash fringe benefit. Medical Expenses Benefits received from health-care plans are generally taxable; the current regime will no doubt be substantially changed by President Obama's health-care law, when finally passed.

NOTE: The tax regime applying to all fringe benefits is highly complex, and professional advice should be taken before planning any scheme designed to minimise taxation. These notes are intended simply to give a general overview and should not be relied upon as a basis for action in any particular case.

Business Travel

For tax purposes, travel expenses are the ordinary and necessary expenses of travelling away from home for business, professional or employment reasons. Expenses that are "lavish or extravagant", says the IRS, are not tax deductible.

The tax treatment of travel expenses depends on how much of a trip is business related and on how much of the trip occurred within the US. With travel entirely within the US, tax is not payable on travel if the trip is entirely-business related. If an employee makes a trip primarily for business and, while at his or her business destination, extends the stay for a vacation or partakes in other non-business activities, only the business-related travel expenses can be deducted.

If a trip is made primarily for personal reasons, such as a vacation, the entire cost of the trip is a non-deductible personal expense, although a person may deduct any expenses he or she has while at the destination that are directly related to his or her business. It is worth noting that a trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip.

If any part of an employee's business travel is outside the US, some of the deductions for the cost of getting to and from his or her destination may be limited. If travel outside the US is purely for business reasons, all travel expenses can be deducted for tax purposes. Even if a person does not spend his or her entire time on business activities, the trip is considered entirely for business if he or she meets at least one of the following four exceptions:

• Exception 1 - No substantial control. The trip is considered entirely for business if the employee does not have substantial control over arranging the trip. According to the IRS, those considered not to have substantial control over a trip are those who are reimbursed or paid a travel expense allowance, those not related to the employer and those who are not a managing executive.
  
• Exception 2 - Outside United States no more than a week. A trip is considered entirely for business if a person is outside the US for a week or less, combining business and non-business activities.
  
• Exception 3 - Less than 25% of time on personal activities. A trip is considered entirely for business if a person is outside the US for more than a week, but spends less than 25% of the total time on non-business activities.
  
• Exception 4 - Vacation not a major consideration. A trip is considered entirely for business if an employee can establish that a personal vacation was not a major consideration, even if he or she has substantial control over arranging the trip.

With travel primarily for business where some time is spent on non-business activities, all travel expenses incurred cannot generally be deducted. Only the business portion of an employee's cost of getting to and from his or her destination is not subject to tax.

Whilst the opportunity of business travel by ocean liner rarely arises, it is worth noting that if a person travels by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount that can be deducted as a business expense. The limit is twice the highest federal per diem rate allowable at the time of your travel. (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the US, for business purposes.) The per diem rule does not apply to expenses if a person has to attend a convention, seminar, or meeting on board a cruise ship.

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Introduction The US Tax Code excludes nine types of fringe benefit expense from taxable income.

Business Travel Expenses that are "lavish or extravagant", says the IRS, are not tax deductible.

Qualified Tuition Reduction A qualified tuition reduction is tax-free.